Findings

Development Centers for Functional and Specialty Ingredients

• In 2017, it was announced that the Ministries of Agriculture and Economy, financed by the Strategic Investment Fund of the Ministry of Economy, will invest in "territorial centers that serve as a basis for the development of a functional ingredients and specialty additives industry of natural origin in Chile."
• The investment is 3.6 billion.
• The government aims to create four development centers within three years to add value to agriculture-related exports, as well as develop innovations and packaging methods to expand to new markets.

Investment in an Underdeveloped Region

• In 2020, the Ministry of Agriculture and the government of La Araucania invested $470 million Chilean Pesos ($574,706) in developing the agricultural sector in La Araucania, which is considered an underdeveloped region.
• The Ministry of Agriculture contributed 233 million Chilean Pesos ($284,907) out of the total amount.
• The investment is supposed to help small farmers from the region lower the production costs and decrease the time needed to do their job with modernized equipment and methods. It has already provided 157 farmers with new equipment and projects related to the infrastructure of production.

Investment in Valle de Itata

• In 2019, the regional government of Nuble signed an agreement with the Ministry of Agriculture to invest 300 million Chilean Pesos ($366,596) in the development of several aspects of agriculture in Valle de Itata, especially those connected with real assets.

• The investment was to help 200 small farmers in Valle de Itata invest in diversifying their production by building greenhouses to produce vegetables, plant orchards, build warehouses and sheds, improve the genetics of cattle, goats, and sheep, as well as for projects related to irrigation and beekeeping.

• The overarching aim of the initiative is to help local farmers to improve their production and life conditions.

Irrigation in Magallanes

• In 2017, the Magallanes region's agriculture got its largest irrigation-related investment to date. The Ministry of Agriculture allocated 1.3 billion Chilean Pesos ($1.6 million) to improve agriculture-related water management in the region.
• The investment was supposed to fund "wells, water wheels, and ponds, drip irrigation systems, sprinklers, photovoltaic systems, wind or hydraulic energy, as well as the installation of biofilters, ultraviolet devices and other elements aimed at reducing water pollution."
• According to the local director of the Ministry of Agriculture, the investment grew 43 times compared to previous years.

Research Strategy

Chile's Top Agricultural Products

• Based on data presented by World's Top Exports, Chile's most valuable agricultural exports in 2019 are as follows:

• Fish fillets, pieces: $2.75 billion 
• Wine: $1.93 billion 
• Whole fish (frozen): $1.81 billion 
• Apricots, cherries, peaches, nectarines, plums: $1.38 billion 
• Grapes (fresh or dried): $1.10 billion 
• Whole fish (fresh): $893.62 million 
• Sawn wood: $788.73 million 
• Miscellaneous fruits (fresh): $755.78 million 
• Apples, pears (fresh): $727.82 million 
• Miscellaneous nuts: $618.46 million 
• Swine meat: $516.07 million 

Supporting Information

• According to Research and Markets, Chile is a leading producer and exporter of agricultural commodities like "grapes, cherries, apples, berries, walnuts, poultry meat, and salmon."

• Similarly, according to SelectUSA, "wine, fresh fruit, dairy, meat, and fishery products" are Chile's main agricultural exports. The country is the "world's largest exporter of fresh table grapes, blueberries, prunes, dehydrated apples, and frozen salmon fillets."

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Machinery and Equipment Challenges

• Chile is one of the world’s top agricultural product producers and exporters. The country exports to more than 150 countries, making it one of the top ten global suppliers for approximately 50 products. 
• In recent times, however, the agriculture sector has been facing technological challenges due to the increasing competition and the need to implement sustainability. The technological challenge has also sprung from integrating various innovations and the need to modernize management.  
• Chile has been forced to adapt to mechanize its agricultural processes to contain its production costs if it is to remain competitive in the international market. Failure to automate its agricultural methods could threaten Chile’s position as an essential global food supplier. Resources have continued to become scarce due to droughts that have hit northern and central parts of Chile. As a result, agriculture-related manufacturers have faced challenges in manufacturing machinery and equipment.

Climate Change

• The Chilean government continues to worry about the climate change effects that continue to wreck farms in Chile, due to prolonged drought periods. Experts state that climate change, mainly due to land over-exploitation, can be blamed for the drought. As a result, many farmers have been forced out of business.  
• The agriculture planted area in Chile, summed to around 621,000 hectares in the 2018/19 crop year, a decrease of almost 11% compared to the 2017 crop year. The 2018/19 crop year is also the lowest planted area reported in Chile for the displayed period.
• Chilean farmers have been forced to embrace sustainable measures to combat and contain the harsh aftermath of climate change. Due to climate change, farmers have not managed to invest in new projects. Instead, farmers have been forced to outsource new projects and machinery to combat the scarcity of labor in farms.
•  Climate change has exposed various aspects of farming to vulnerability. Salmon farming, which plays a vital role in the Chilean agriculture industry, for instance, has continued to be threatened by climate change, particularly in southern Chile. Some of the threats posed to the aquatic life include; changes in water temperature and salinity, diseases, and rapid decline in dissolved oxygen.

Water Crisis

• The water crisis in Chile has hugely affected the country’s top industry, agriculture. Livestock is dying, and regions that were once fertile are turning into islands.  
• The water crisis in Chile has been as a result of climate change consequences. In 2019, the Chilean government estimated a reduction of water availability across the nation, which stood between 10% and 37%, compared to three decades ago. In some regions in the country, the water is estimated to have depleted by half. 
• Many sectors, including the agriculture sector, have been affected by this crisis. The government is, therefore, forced to ration water, as the resource does not yet have a reliable national inventory. South-central Chile, a densely populated area that primarily supports agriculture, has been the most impacted area. Overall, the agriculture sector in Chile uses the most water, and the crisis is likely to severely affect the agriculture industry.
• In 2019, Chile declared water scarcity a national disaster. The water crisis has affected over 50 communities in three regions, which has prompted an agriculture emergency across the region. The last time the country faced such a massive drought was 60 years ago. As a result, the local authorities have pledged to set aside a $58 million budget to ensure that people living in rural areas can access water for agriculture and consumption and tap more water sources.
• The Chilean government has been blamed for allowing the private sector to own more than 80% of the water, which has escalated the crisis in Chile, thus jeopardizing industries such as agriculture and livestock.

Salmon Farming Controversies

• Since agriculture is the prime sector in Chile, it is diversified to cater to different areas. Aquaculture, and mainly commercial salmon farming, has been rapidly growing in the past two decades. Today, Chile is the second-largest seafood producer in the world. Despite its success in salmon farming, the country continues to face various controversies in this salmon farming.
• The biggest issue originates from environmental and social concerns, which could scare away investors. Analysts predict that these issues could grow more prominent in the future, as the sector seeks to expand into deeper biodiversity hotspots.  
• In the past three decades, marine and inland aquaculture in Chile has shown rapid growth. Further, the shrunk marine capture fisheries have relatively contributed to the total growing fish production, not just in Chile, but around the world, which stood at 44.1% in 2016. The growth of Chilean salmon farming and production has been marred with sanitary and environmental issues, which has led to regulation of impacts in the freshwater stage, compared to the marine fattening phase.
• Environmentalists have continued to raise issues regarding aquaculture, which is an essential sector in the country. However, the industry has continued expanding, posing risks such as endemic and epidemic diseases, as well as sizable outbreaks of sea lice that could rapidly plague sea farms in Chile.
• While commercially farmed salmon does not contain antibiotics, experts argue that the salmon farming sector in Chile is predicted to contribute to antibiotic resistance. Chile exports farmed salmon to markets such as the U.S., Japan, and Brazil, and such controversies could affect the salmon export market for the country.
• Experts continue to argue that although there have been no traces of antibiotics in exported salmon, the resistance problem of antibiotics in salmon remains in Chile and locally sold salmon. Salmon farmers and residents around salmon farms are said to be at risk of potential infections.  

Chile's Private Farms

• Around 21.17% (157,418 square kilometers) of Chile's land area was classified as agricultural based on the latest data from the World Bank.
• The country's portion of agricultural irrigated land was around 6.95%.  
• Chile has around 0.0697 hectares per person of arable land.
• Chile has around 15,747 thousand hectares of agricultural land.
• The country's agricultural activity is purely privately-owned.  
• The average farm size is around 2,000 hectares.  
• Given this, the number of private farms can be calculated as follows:
• Number of Private Farms = Total number of Chile's agricultural land / Average farm size
•  15,747 thousand hectares / 2,000 hectares = 7,874 private farms.

Chile's Export Insights

• Approximately 6.83% of merchandise exports are made up of agricultural raw materials exports.
• Chile's GDP that was derived from agriculture grew to 1,893.07 CLP billion ($2.3 billion) in the first three months of 2020 from 1019.20 CLP billion ($1.25 billion) in the last three months of 2019.
• The country's combined agricultural, forestry, and fishing goods exports decreased by 29% in May 2020 compared to the previous year.
• The country is one of the top ten agricultural exporters globally.
• Its primary exports include agricultural products such as fresh fruit, dairy, and meat products.  
• Chile's top export partners for all its products are the following: China ($22.57 billion - 33% of total sales), the United States ($9.49 billion - 14%), Japan ($6.37 billion - 9%), South Korea ($4.70 billion - 7%) and Brazil ($3.16 billion - 5%). Other export partners include Peru ($1.82 billion), the Netherlands ($1.57 billion), and Mexico ($1.35 billion).
• Edible fruits, nuts, peel of citrus fruit, melons exports from Chile account for 9.5% of the country's total exports in 2019. The total value of this export category is around $6.6 billion.  
• Meat and edible meat offal made up 1.6% of Chile's total exports in 2019. This export category has a total value of $1.13 billion.  
• For the country's vegetable, fruit, and nut food preparations, the total export value is around $625.70 billion, 0.90% of the total export value.
• As for Chile's oilseed, oleagic fruits, grain, seed, and fruits category, the total export value is $385.02 million, 0.55% of the total export value.
• For the animal, vegetable fats and oils, and cleavage products, the total export value in 2019 is $246.30 million, 0.35% of the total export value.
• Other export categories and their worth include the following:
• Dairy products, eggs, honey, edible products: $136.05 million  
• Cereal, flour, starch, milk preparations, and products: $172.54 million  
• Edible vegetables and certain roots and tubers: $118.16 million 
• Cereals: $78.20 million  
• Live trees, plants, bulbs, roots, cut flowers: $67.07 million  
• Vegetable plaiting materials, vegetable products: $31.75 million  
• Sugars and sugar confectionery: $26.86 million  
• Raw hides and skins (other than fur skins) and leather: $24.40 million  
• Cocoa and cocoa preparations: $23.62 million  
• Cotton: $13.29 million  
• Live animals: $8.42 million  
• Coffee, tea, mate, and spices: $7.34 million  
• The top five importers of Chile's vegetable exports are the U.S. ($1.98 million); China ($1.4 million); The Netherlands ($504,020); the U.K. ($289,345), and Brazil ($245,197).
• The top five importers of Chile's agricultural raw materials are China ($2.4 million); Japan ($501,808); South Korea ($407,865); the U.S. ($324,114); and The Netherlands ($295,767).
• The top five importers of Chile's animal exports are the U.S. ($2.05 million); Japan ($1.25 million); Brazil ($613,100); The Russian Federation ($571,829).
• The top five importers of Chile's food exports are the U.S. ($4.5 million); China ($2.5 million); Japan ($1.75 million); Brazil ($1.02 million); and The Russian Federation ($777,200).
• Exports from the country go to countries that make up 86.3% of the worldwide GDP with preferred tariff terms.

Research Strategy

Key Insights into Chilean Aquaculture

• According to the most recent data from the Food and Agriculture Organization of the United Nations, the aquaculture industry in Chile produced 1,287,233 tonnes of fish at a value of $10,498,982,000 in 2018. Total world production for the same year was 114,508,042 tonnes at a value of $263,636,328,000 so that Chile accounted for 1.1% of the world's production but 4% of the global earnings.
• Chile is the largest aquaculture producer in South America and the industry has grown significantly in the past three decades since the 1980s as a result of increased production in three main species — Atlantic salmon, rainbow trout and coho salmon.
• The main species of aquaculture farms in Chile is the Atlantic salmon. In 2018, Chilean farms produced a total of 669, 237 tonnes of the species which accounted for 30% of the world's production (second highest in the world behind Norway).
• According to the National Fisheries and Aquaculture Service of Chile, there were 2,217 aquaculture farms (with or without harvest) operating in the country. The harvest output of these farms were recorded as follows: 67% fish, 31% mollusks, 1% algae and 1% other species.
• In 2018, the Chilean Salmon Industry Association (SalmonChile) estimated more than 850,000 tonnes of salmonids, including primarily Atlantic salmon and coho salmon, were shipped bringing in more than $5 billion in revenue and accounting for the second highest export earnings behind copper. The largest market for Chile's aquaculture products is the United States of America which accounts for 29% of its volume and 37% of its value shares. Japan accounts for 18% and 16.8% of volume and value, respectively, while Brazil is the third largest market at 14.5% and 11.8%.
• Environmental issues have plagued the aquaculture market in Chile. In 2016, large algal blooms led to a significant decline in production by the industry's biggest company AquaChile. Infectious diseases such as sea lice continue to plague the sustainable development of salmon aquaculture which uses the highest amount of antibiotics in the world to combat the problem. These antibiotics have been found to leach into the surrounding waters and harm native species of fish.
• The Chilean government is has implemented regulatory framework to reduce the use of antibiotics and lower the environmental impact of the aquaculture industry but businesses have begun to sue, citing unfair penalties and large declines in profits.

Chile

Production

• The production of aquaculture in Chile has grown from 32,444 tonnes in 1995 to 1.27 million tonnes in 2018, the highest it has ever been. In dollar terms, the industry's revenue was $10.9 billion in 2018, growing by a cumulative annual growth rate of 1.6% between 2014 and 2018.
• Out of the 1.27 million tonnes of aquaculture produced in 2018, 862.2 thousand tonnes were diadromous fishes, representing about 70.8% of the industry's overall volume.
• Virtually all fishes in the industry are grown in a marine environment (99.93%), followed by freshwater (0.07%), and brackish water with a very negligible contribution of just one tonne.

Strengths

• Despite not being native to Chile, salmon has become the major driver behind the country's aquaculture industry. Consequently, Chile has grown to become the second-biggest producer of salmon, just after Norway.
• There is a strong government push to further grow the industry. For example, the country's aquaculture research institution, AquaPacifico, recently launched an innovation center to "lead the development of production methodologies for more than 17 species, including croaker, palometa, the cojinoba of the north, oyster, abalone, clam, and north river shrimp."
• Through the Fisheries Research Fund (FIP), the government also sponsors different annual fisheries and aquaculture programmes. There are other government-sponsored funding such as the Fund for Promotion of Scientific and Technological Development (FONDEF), the National Fund for Technological and Productive Development (FONTEC), and the Fund for Development and Innovation (FDI) all managed by the Chilean Agency for Economic Development (CORFO).
• There is also considerable evidence that the industry partners with organizations around the world like the Food and Agriculture Organization (FAO) on themes such as sustainability. For example, there are four sites in Chile participating in the FAO's "Global Environment Facility (GEF) project focused on strengthening the adaptive capacity of the artisanal fishing and aquaculture sectors to climate change."
• The cost of production of slaughtered and packed salmon in Chile was NOK 35.40 ($3.74) per kilogram in 2018. This number is considerably cheaper than some of the nations Chile competes with. The cost of production in Norway, Canada, and the Faroe Islands are NOK 37.85 ($4) per kilogram, NOK 41.8 ($4.42) per kilogram, and NOK 38.8 ($4.10) per kilogram, respectively. The reason for Chile's lower production costs has been attributed to the country's "significant biological improvements," particularly its work in reducing diseases.
• In 2018, the global production of Atlantic salmon grew by 5% with the bulk of this increase attributable to the 14% growth in Chile. This growth has been attributed to new regulations that are yielding results. For example, new regulations seek to "make output growth conditional on positive environmental and biological metrics."
• Consequently, metrics such as feed conversion ratios and mortality rates have improved, which have been reflected in the production numbers.

Weaknesses

• As a rapidly growing industry, the aquaculture industry in Chile has experienced several disease outbreaks, particularly, sea lice at salmon farms. To this end, the industry uses large amounts of antibiotics and chemicals to mitigate the outbreaks. As such, the "level of antibiotics used in Chile’s salmon farming industry is higher than in any other country in the world and has had considerable impacts on both animal welfare and the environment." This high level of antibiotics has damaged the industry's reputation with US consumers and retailers.
• The industry is also rife with sanitary concerns. In 2016, a pile of dead fish washed ashore in Chiloé along with birds, crabs, and other species that feed on fish. Apparently, local salmon companies disposed of over 9,000 tonnes of fish into the sea, which was consumed by the dead fish, crabs, and birds.
• Similarly, under the watch of local salmon companies, 700,000 fish "escaped" into the wild, causing a sudden increase in competition for food in the marine ecosystem.
• The country's inability to tap into areas widely acknowledged as great for aquaculture can also be deemed as a weakness. The capital outlay required to open up these areas such as Patagonia for fish farming will be enormous due to the region's remoteness. That said, there has also been opposition from "scientists and campaigners, claiming that introduction of the non-native salmon into the ecosystem will replicate damage caused by the aquaculture industry elsewhere in the country."

Norway

Production

• In 2018, the total aquaculture production in Norway was 1.35 million tonnes with virtually all produced in marine water.
• As high as 80% of Norway's production is made up of intensive farming of Atlantic salmon.

Strengths

• The government recently divided the country into 13 defined production areas, using scientific calculations to color-code these areas based on their "perceived risk of lice-induced mortality on wild salmon numbers." This is one of the government's regulations regarding growing the industry where it is environmentally sustainable.
• While investments in advanced equipment for monitoring, automation and streamlining have been one of the driving forces in increasing production cost in the short-medium term, the long-term effect is that these investments will contribute to decreasing the industry's environmental footprint and impact.
• As political tensions between Norway and China have eased, more and more fish is exported to China. Consequently, the demand for Norwegian products is on the rise in China, which has also extended to South Korea. This offers fish farmers in Norway more options for their products.

Weaknesses

• According to a report by the Norwegian Seafood Research Fund (FHF) and Norwegian Institute for Food, Fisheries and Aquaculture Research (Nofima), the cost of production has been steadily increasing in recent years.
• As stated above, the average cost of production is NOK 37.85 ($4) per kilogram. With current government proposals. However, this figure will likely increase in the future. The government is proposing a tax rate of NOK 0.40 ($0.042) per kilogram of fish produced starting from 2021.
• From 2022 also, the government is proposing that "revenues from sale and auction of capacity increase and new licenses will be split between central and local/regional governments, with respectively 75 percent and 25 percent."
• Norway's aquaculture production is also highly susceptible to the cold weather, particularly during cold winter; for example, the country fell short of projected production target in 2018 due to cold winter.
• Additionally, Norway is dealing with a huge lice problem. In 2019, the country spent NOK 5.2 billion ($548.89 million) on combating salmon lice. One of the reasons for this is that sea lice in the area "have become resistant to many previously effective treatments."
• Despite improvements in the countries' relationship in recent times, Norway is still subjected to a 10% tariff when they export salmon to China. Chile is not subjected to this tariff due to a customs agreement between Chile and China.

China

Production

• China's aquaculture production has grown from 15.86 million tonnes in 1995 to 47.56 million tonnes in 2018.
• In 2018, 29.59 million tonnes were produced in a freshwater environment, while 16.39 million tonnes were produced in a marine environment. On the other hand, 1.59 million tonnes were produced in brackish water.

Strengths

• The government's recent clamp-down on irregularities and illegal fishing is putting the much-needed structure into the country's aquaculture industry. An example of such campaigns is the "Shining Sword campaign against illegal fishing in domestic waters."
• The central government and regional governments across the country are putting aside funds to modernize the industry. For example, Guangxi has committed to spending CNY 8 billion ($1.14 billion) over five years. Targeted areas of investments include "improved genetics, improved vessels, and a roll-out of recirculating aquaculture systems (RAS) to replace earthen ponds."
• According to the FAO, China has an "obvious export advantage on the international market."

Weaknesses

• The workforce in China's aquaculture is shrinking. One of the reasons for this is low annual income, which stood at an average of CNY 18,450 ($2,685) per year. Additionally, large labor transfers during China's fast-tracked urbanization means many aquaculturists have pivoted to other industries.
• While some of the regulations mentioned above in the 'strengths' section are well-intended, one of the consequences has been pushing small-time and part-time businesses out of the industry due to the high cost associated with meeting up with environmental and regulatory laws. Some larger players have also fallen victim due to severe disruptions.
• The industry in China is concentrated in rural areas where most of the aquaculturists have insubstantial education. As such, typical producers will rather continue using traditional farming techniques rather than adopting new technologies. Although, it should also be said that the government has set up several initiatives over the years to combat this issue, including the aquaculture extension system.
• However, despite the tremendous achievements through the aquaculture extension system, challenges persist that may hinder future developments. These include insufficient funds, limited technical aquaculture extension workforce, and bottlenecks across the five levels of the administrative structure.
• The trade tensions between China and the United States could also affect the industry, albeit at a small scale according to a report by the Organization for Economic Co-operation and Development.

Disease

• The salmon aquaculture industry in Chili is threatened by multiple diseases that can spread throughout the farmed fish population.
• Diseases include Salmon Rickettsial Syndrome (SRS) and Salmon Anemia (ISA), both of which cause death of the fish and which have had major outbreaks in Chili.
• In 2007, Chilean salmon farmers dealt with an outbreak of ISA which caused many farms to close and over 2,000 workers to lose their jobs.
• In order to cope with these diseases, aquaculture farmers are turning to increasingly high doses of antibiotics, which experts caution may cause antibiotic resistance and which adds to consumer concern.
• Additionally, there has been increased regulation on aquaculture practices in response to these disease outbreaks and subsequent antibiotics use. These regulations and complex and cause challenges for both farmers and lawmakers.

Rising Water Temperatures

•  Rising water temperatures, due to climate change and the affects of El Niño in Latin America, is contributing to large fish die-offs for Chilean aquaculture producers.
• Rising water temperatures combined with nitrogen runoff from farms in Chile are causing red tides, or harmful algae blooms (HAB). In 2016, Chilean salmon farmers lost "around 100,000 tonnes of fish stock, reportedly worth USD$800m."

• While these tides are not caused by the aquaculture, the tides do have devastating economic impacts on the industry.
• Additionally, the way the industry handles the red tides and disposing of the dead fish have caused increased scrutiny on the industry by environmentalists. The disposal of fish killed by the red tides also caused tensions between aquaculture farmers and fishermen in the region, when fisherman believed that the disposal at sea of salmon killed by red tides caused increased red tides and government closures of multiple fisheries, affecting the fishermen's livelihoods.

Consumer Perception

•  Due to the increased antibiotics use, the potential for GMO farmed fish escaping into the wild, and other negative environmental affects of the farmed salmon industry, consumers have an increasingly negative perception of farmed Chilean salmon.

• Consumers, concerned that antibiotic resistance could be passed to humans via the consumption of farmed salmon that has consumed large amounts of antibiotics, have begun to avoid Chilean farmed salmon. Chains such as Whole Foods and Costco removed Chilean salmon from their fish counters.
• Influential environmental groups such as Greenpeace have succeeded in lobbying for further restrictions on the expansion of Salmon farming in Chile, including limits on expansion into Patagonia.

Aquaculture High-Producing Farms in Chile

• Located in Calbuco, Los Lagos, Abtao farm is a BAP certificate site operated by Salmones Multiexport. The site has 71,65 hectares.
• Located in Rio Verde, Magallanes, Estero Riquelme has 69 hectares and it is operated by Blumar.
• Located in Castro, Los Lagos, Imelev is operated by Salmones Multiexport and has 49,95 hectares.
• Mina Elena is located in Rio Verde, Magallanes. The site has 44,50 hectares and its owned by Blumar.
• Teuquelin NE is located in Quinchao, Los Lagos. The site has 31,50 hectares and it is operated by Salmones Multiexport.
• W Punta Vergara is located in Puerto Natales, Magallanes. Operated by Blumar, the site has 23,07 hectares.
• Puyuhuapi II, is located in Natales, Aysén. With 22,64 hectares, the site is controlled by Multiexport.
• Córdova 5 is operated by Australis Seafood. The site has 20 hectares and it is located in the Magallanes District, Magallanes.

Size and Production

• A study analyzed various factors that influence the production in aquaculture, particularly salmon. As it reports, larger areas allow "scaling the production unit as the fish grows." The study also mentions the fact that farm size is related to increased profitability. Another study concluded that size was one of the determinant factors of fish farming production.

Research Strategy