Diversification efforts are up as instability over anchovy supply continues

Fishermen in Peru are facing a second consecutive year of losses as the supply of anchovy, the sector’s prime catch, has dropped to a record low. In a climate of instability, the sector is increasing diversification efforts to reduce dependence on the delicate resource.

Anchovy

The Ministry of Production (Ministerio de Producción, PRODUCE), which oversees fisheries and issues the total allowable catch (TAC) for the season, suspended the second anchovy season of 2014, (which normally takes place from mid-November to January), in the north-centre region of Peru, the country’s main fishing region. The decision followed a recommendation by the Marine Institute of Peru (Instituto del Mar del Perú, IMARPE), whose latest survey, released in October, shows an alarming drop in the anchovy population. According to IMARPE, the amount is down to 1.45m tonnes, from between 10.8m and 12.1m tonnes in a survey released in the spring of 2013.

The record low is being attributed to a rise in the passage of Kelvin waves, which raise the water temperature in Peru’s normally cold, plankton-rich territorial waters, forcing the anchovy population to migrate from their normal areas. According to IMARPE, estimates of anchovy biomass were made difficult by researchers’ inability to find the stock, which was closer to the shore and more spread out than usual. The anomalies precede an expected strong El Niño occurrence in 2015, which could have devastating effects on the sector. The last strong El Niño, which took place in 1997-98, caused losses of $26m to the sector, according to the Andean Development Corporation. The current suspension has sent the industry into shock. “We expected the TAC for the second season of 2014 to be around 2m metric tonnes,” Raúl Briceño Valdivia, chief financial officer of Exalmar, an industrial fishing company and one of the main anchovy quota-holders, told OBG. The news comes after a difficult 2013 and a poor first season in 2014 (from April to July), during which only 68% (1.71m tonnes) of the TAC was harvested. Since 2000 the annual anchovy catch had averaged 6.8m metric tonnes.

Fishmeal & Oil

Anchovy is the backbone of the fishing industry. It represents around 90% of the sector’s total sales, and with 25% of global production, Peru is the largest producer and exporter of fishmeal in the world. The majority of fishmeal exports – 65% – make their way to China, where it is used for animal feed, while fish oil is in high demand in the European food industry. In 2013 fishmeal exports fell 23% to $1.36bn, from $1.77bn in 2012, while oil exports dropped 37% to $343m, from $542m. Total fish exports were down 18% the same year, totalling $3.2bn. The tight supply from Peru, coupled with rising global demand, is likely to see fishmeal prices soar further from $1900 per tonne at present, while they were around $400 per tonne in 2000. Fish oil prices have experienced a similar trend, with average prices rising by 8.3% to $2000 per tonne from April 2013 to April 2014, according to Infotrade.

Increased Supervision

PRODUCE maintains that illegal fishing has decreased in recent years, but claims of overfishing and a neglect of sound fishing practices, in a bid to capitalise on record-high prices, continue.

The government has boosted efforts to enforce supervision at sea and has taken a tougher stance on violations. In January 2013 nearly $3m in fines were issued to commercial companies for fishing more than 18,000 tonnes of juvenile anchovy.

A new decree introduced in August 2012 restricted commercial vessels fishing for export to areas at least 10 nautical miles (18.5 km) off the coast. Vessels with a capacity of 10-32.6 cu metres are allowed to operate 5-10 nautical miles (9.25-18.5 km) off the coast, while the corridor closest to the shore is reserved for artisanal vessels with capacity up to 10 cu metres.

These areas are home to the predominant share of juvenile anchovy. Some claim the measure has enabled overfishing and an improper use of resources. Jorge Vigil Mattos, manager of the extraction and processing office at the National Fishery Society, which represents the seven main anchovy-quota holders (which together account for 75% of production), told OBG, “The small and medium-sized fleets operate 24 hours a day, every day of the year, leading to overfishing during the most vulnerable cycle of the anchovy’s life. Inadequate fishing policies have enabled a large illegal market, where resources which should be used for human consumption, are being used to make fishmeal in small plants.”

Sector specialists have also complained that a lack of continuity in fishing policies is hurting the industry. “The private sector and the government need to formulate a national strategy to better harvest natural resources and add value to the industry, but joint efforts need to be better articulated,” Darío Alvites Diestra, president of fishing firm Peru Pez, told OBG.

Contigency Plan

Concerned that IMARPE may recommend the suspension of a second season in a row, PRODUCE announced, in early November 2014, a contingency plan. Juan Carlos Requejo, deputy minister of fisheries, told local media that measures will include strengthening fishing for human consumption, in particular of species such as squid, tuna, mackerel and jack mackerel, and promoting fishing in the south. Anchovy fishing is still open in the southern region, but fishing volumes here are typically much smaller and the legal framework is weaker. The contingency plan also calls for the exploitation of other species which, as a side effect of El Niño, are available in higher quantities, as is the case with oceanic lightfish and tuna.

Diversification

In an effort to reduce dependence on anchovy, efforts are being made to develop the human consumption segment. “There has to be diversification and development of strategies to add value, take advantage of the varied natural resources and reduce dependence on anchovy,” José Miguel Tirado, general manager of Copeinca, one of the largest fishing groups, told OBG. Though human consumption represents only around 10% of production, it is likely to expand in coming years. “Exports for human consumption reached an estimated $1bn in 2013, with giant squid and mackerel among the alternative species with potential. This will continue to grow in the near future and will help minimise the sector’s dependence on anchovy,” Alvites said. Peru is already the main exporter of scallops to Europe and maji maji to the US. About half of production for human consumption is absorbed by the domestic market, while the other half is exported. Diversification efforts have focused on developing cold chains domestically while attempting to penetrate new markets. Exalmar has invested $40m in freezing plants in the north and south of Peru to process other types of fish such as mackerel, cuttlefish and prawns. “It’s a new line of business for Exalmar, which at the moment represents 10-15% of our activities,” he told OBG.

The suspension of the second season of 2014 will have an effect on companies’ 2015 earnings. If an El Niño event does occur in 2015 it could extend the sector’s recovery time by as much as three years, according to the Ministry of Economy and Finance.

Peru succeeded in ensuring its anchovy population recovered after the El Niño event of 1997-98, and recovery is therefore possible, as long as government policies ensure a sustainable management of resources.