Pharmaq Second fortnight of July
1 Can the US default on debt hurt the Chilean salmon industry and dampen the recovery enthusiasm? Markets and governments worldwide are anxiously awaiting the result of negotiations being held in Washington to raise the federal government s authorised debt limit. This is already hitting the Chilean salmon industry: the salmon stock market index is at around a 5- point loss and with an imminent drop in the US dollar exchange rate it is possible that many producers may go under. This might seem like an issue of high-level finance and top political negotiations, but many people believe it could have a direct and lasting impact on the general public, not only in the United States but also worldwide. This newsletter presents four things that might happen if the debt limit is not raised and the United States goes into default for the first time in its history. Treasury bonds and pension pots lose value. Treasury bonds are the backbone of the global bond market. If Washington is compelled to go into default, that would lead to a confidence crisis worldwide. Although these bonds are largely held by large investors and the government, many people buy "packages" of financial products through investment and pension fund companies, which almost always contain US bonds. For example, participants of private pension funds, like those available in the market in many Latin American countries, might have a portion of their portfolio in US bonds. In that case, it would be possible that a situation affecting these US Treasury bonds might reduce the value of their pensions. That would affect salmon sales in markets like Brazil as consumers would prefer cheaper proteins. When the US dollar drops, inflation rises. The fear is that loan problems might affect the credibility of the US dollar, and people in other countries therefore stop buying it, which would push down its exchange rate. That would hit exports and if you add the low salmon price, only the most efficient companies would remain in the market. When unemployment increases, the United States buys less. Default by the US government would most probably make it more complex and costly for the United States to re-borrow, which would most likely lead to a large reduction in government spending, currently greatly dependent on loans. The same might happen with consumers. If US banks collapse due to the widespread panic caused by default, nobody knows exactly what the outcome will be for the general public overseas, but what we do know is that you will not be eating salmon.
2 Chilean salmon exports surge over 55% in the March-May moving quarter The financial services company ForexChile said in a reasoned analysis that in May Chilean salmon exports were 6.18% up on April and amounted to US$197 million, and surged 55.17% in the March-May moving quarter on the same period in 2010. Regarding the performance of currencies of Chilean salmon export markets, ForexChile stated that in May 2011 "they continued to appreciate against the Chilean peso with the exception of the US dollar, which depreciated 0.24%. The Yen appreciated 0.64%, the Euro 0.71%, and the Brazilian Real 1.76%. The Yen accounted for 2.22% of the revenues of these currencies in the year, the US dollar 0.32%, the Euro 8.84% and the Real 5.71% against the Chilean peso." It also said that the currencies of the countries that compete against Chile in the salmon industry "ended up the month with the US dollar appreciating by 0.24% against the Chilean peso, the Euro appreciated by 3.02% against the pound, and the Norwegian Krone appreciated 0.27%. The US dollar appreciated 1.34% against the Canadian dollar and the Brazilian Real appreciated 1.76% against the Chilean peso. Chile s Directorate of Fisheries certifies three laboratories specialised in aquaculture diseases Juan Luis Ansoleaga, the director of Chile s Directorate of Fisheries (SERNAPESCA), announced that this body will step up its aquaculture disease prevention programmes by including the laboratories of the Catholic University of Valparaíso (PUCV), the Austral University of Chile (UACh) and the University of Valparaíso (UV). This ends an innovation project of Chile s Economic Development Agency (CORFO), which since 2008 has sought to establish a national network of specialised diagnosis laboratories to boost the work of public and private sectors in this area, and such work is undertaken with the Salmon Technology Institute (INTESAL), the three universities mentioned and SERNAPESCA. According to the announcement, the laboratories meet the international standards of the World Organisation for Animal Health (OIE), and at the same time they are certified by the Chilean Standards Institute, i.e., the methods and results of these three laboratories are recognised internationally as valid. In turn, their work will enhance the diagnosis and assessment methods in the rest of the laboratories and in SERNAPESCA. Itata and El Golfo shareholders give go-ahead to merger Shareholders meetings of Pesquera Itata and El Golfo, held on Thursday 28 July in Santiago (Metropolitan region), approved the merger between both companies that should take place in September at the latest. As Chile s financial newspaper Estrategia reported, the new company name is being registered, which shall be approved by the next extraordinary shareholders meeting to be held in September or October of this year, as Gerardo Balbontín, the future company general manager, said. Itata s board will be changed in September, which in this merger will be that of the absorbing company El Golfo. That is insignificant as there will be a generation change in the Sarquis and Santa Cruz families. Two Itata directors will be appointed: Rodrigo Sarquis, the president of Chile s National Fishing Society (SONAPESCA), and his brother Gonzalo, with Sergio and Jorge Sarquis departing. Two directors of El Golfo will also be appointed, and the entry of Juan Manuel and Pablo Santa Cruz and Alberto Romero is being assessed. As things stand, Jaime and Manuel Santa Cruz will not continue on the board. Minority shareholders will have three representatives on the board.
3 Business plans We are currently consolidating the plans of both companies to drive the aquaculture business. This year we will invest US$65 million in working capital and US$20 million in fixed assets, said Balbontín. The plan in the salmon farming business will be to increase consolidated harvests of 20,000 tonnes in 2011 to 45,000 tonnes in 2012, and then ramp up to 52,000 tonnes in 2013. The potential is to produce 60,000 tonnes which will be attained in 2014, with the aquaculture business thereby exceeding the fisheries business in revenue and cash generation. The company arising from the merger has 30 current permit applications in Magallanes, and we expect six to eight applications to be approved. In two years, ten Atlantic salmon permits could produce 20,000 tonnes, said Balbontín. Marine Harvest ASA posts a 12.6% jump in earnings in the second quarter The steady demand for salmon and high prices across all markets enabled Marine Harvest ASA to increase its operating EBIT by 12.6%, which rose from US$142 million in the second quarter of 2010 to US$160 million in the same quarter of this year. Marine Harvest also reported from April to June of this year it harvested 80,000 tonnes of salmonids, of which its affiliate in Chile only accounted for 1,000 tonnes. The company harvested 54,000 tonnes in Norway and 13,000 tonnes-21,000 tonnes and 8,000 tonnes in Scotland and Canada, respectively. Likewise, Marine Harvest ASA said that US$9 million were lost due to pancreas disease (PD) in the south of Norway and that the operating EBIT averaged US$2.3 per kilo of salmon sold. Tougher salmon farming rules in Chile will entail extra investment of US$336 million The Chilean salmon industry is divided about producing salmonids in lakes, estuaries and rivers or not. There are companies who say that, based on the sanitary and productive condition after the disaster caused by the infectious salmon anaemia (ISA) virus, smolts should be produced in closed circuits on land (hatcheries). Companies like Australis Seafoods are in this category, Chile s main El Mercurio newspaper reported. Others opt for farms in lakes, rivers or estuaries, as well as hatcheries. Companies like Empresas AquaChile, run by Víctor Hugo Puchi, are in this group. According to this company, land hatcheries do not have the capacity to produce coho and trout smolts needed to revive the industry. The option taken will entail different investment amounts for the industry. According to a recent report by the Under Secretariat of Fisheries (SUBPESCA), a farm in a lake costs US$1.6 million, US$1.3 million in an estuary and US$3.7 million in rivers. In contrast, a land hatchery costs US$6 million. In the same study, the SUBPESCA estimates that banning the production of juvenile fish in these areas would lead to the closure of at least 30 farms in lakes, 20 farms in estuaries and six farms in rivers. Based on this, and if companies decided to shift these 56 farms to land (at a cost of US$6 million for each farm), they will have to invest US$336 million. This issue is currently being analysed by a government-appointed panel of experts to define complex issues for the industry, whose mission is to give the SUBPESCA a non-binding opinion. Last Monday, SalmonChile gave a presentation to this panel and which, as CEO Carlos Odebret explained, provided SalmonChile s vision. "We are not against the use of rivers and lakes, but there should be stricter requirements to preserve the sanitary status of the salmon industry." He was more adamant about estuaries saying "it is a risk," and the preference is therefore to ban them. Empresas AquaChile and DuPont announce partnership to make major changes to global aquaculture AquaChile and DuPont announced a partnership of over four years of work that will lead to game-changing salmon farming improvements and a reduction of fishmeal and fish oil needs to feed salmon but maintaining the high levels of omega-3, which will be a breakthrough for global aquaculture.
4 The partnership between AquaChile and DuPont started in 2007, and the initial focus was Atlantic salmon and the development of better processes. AquaChile and DuPont have developed a new feed strategy, which greatly reduces the need of catching wild fish as part of the salmon diet. This change has been made possible by adding an innovative DuPont-developed vegetable food ingredient to the diet, and this food can be used for other species. This innovation, besides others, has been developed in accordance with the proposals of NGOs, highlighting the standards proposed by the World Wildlife Fund (WWF) through the science-based forum Salmon Aquaculture Dialogue (SAD). Traditional salmon farms worldwide need about 4 kilos of pelagic fish to produce the fish oil needed to farm 1 kg of salmon. The new diet created by AquaChile and DuPont only needs 1 kg of wild fish catch per 1 kg of salmon, which is a 75% drop in fish in the diet but maintaining the same levels of omega-3. This new approach to salmon farming was successfully implemented at AquaChile s farms. This salmon, whose trademark is Verlasso, will initially be launched in at least four cities in the United States as of September. "Verlasso fundamentally changes the relationship between salmon aquaculture and the oceans, according to Scott Nichols, the director of Verlasso. What began as a philosophical approach to solving an environmental problem is now a reality that brings aquaculture into more harmonious alignment with surrounding ocean environments, he said. Verlasso is a yeast, which is a new vegetable alternative of the essential long-chain omega-3 eicosapentaenoic acid (EPA) nutrient, which is necessary for the health of salmon and for healthy hearts of human beings. DuPont s omega-3 technology has more than 55 patents, as it is highly innovative metabolic engineering. Chile to develop vaccine against bacteria outbreaks causing 50% mortality of salmonids in the fattening stage One of the main bacterial pathogens that affects Chilean salmon farming is the Piscirickettsia salmonis (P. Salmonis) bacterium, which causes salmonid rickettsial septicaemia (SRS). Since it emerged in 1989, SRS has evolved over time with more insidious outbreaks, which are resistant to oral treatment and with an increase in virulence for rainbow trout and Atlantic salmon. The frequency of P. Salmonis occurring is so important that there are farming seasons in which it has caused the death of one out of two salmonids in the fattening phase. "That is a very high proportion and the development of an efficient vaccine against P. Salmonis is therefore an urgent challenge for salmon farming," said Claudia Altamirano, professor at the faculty of biochemical engineering of the Catholic University of Valparaíso (PUCV). Claudia Altamirano, who holds a PhD in biotechnology, is in charge of the research project "optimised production of Piscirickettsia salmonis in a liquid culture to generate innovative vaccines," one of the 54 winning projects of the XVIII Annual Research and Development Competition of the Fund for the Promotion of Scientific and Technological Development (FONDEF). This initiative, with participation by the companies Centrovet and Genexpress that distribute materials for the scientific and biotechnology sector, is supported by the deputy director Sergio Marshall, professor of the biology faculty of the PUCV, who has made a major contribution to literature on this microorganism in the last few years. The project, which will be developed over three years, received Ch$288 million from the FONDEF competition, besides donations from the PUCV and the companies involved. Science has been working on cultivating the pure bacterium. Research and progress serve as the basis for the PUCV project, whose aim is to define a process to cultivate Piscirickettsia salmonis on an industrial scale to obtain high concentrations of pure biomass. "We are also going to genetically manipulate the microorganism, which will be key progress of the molecular research of P. Salmonis and will enable us to understand the basic aspects of its pathogenic effect and its virulence, which are currently unknown," said Claudia Altamirano.
5 The key objective is to obtain a large biomass of pure P. Salmonis culture, free of cell contaminants and maintaining its virulence markers to produce a cheaper vaccine than those currently made that can induce a suitable immune response in the fish injected.