Before the crisis 1 The private sector before the crisis: Salmon farming firms and Salmon Chile

57 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 4 Strengthen the authority of the public sector for enforcement The enforcement functions of both Undersecretariat of Fisheries and Aquaculture SubPesca and the National Fishery Service Sernapesca were enhanced. Under the new law, the Undersecretariat of Fisheries and Aquaculture has the authority to establish resolutions based on the issues determined by the modification of the Aquaculture Law Ley No. 20.434 to specify detailed operational measures such as the level of fish density in cultivation centers by species or by locationbased on clear indicators through consultation with experts. The National Fishery Service enhanced its authority to enforce regulations set by the Undersecretariat. They now have the authority to inspectall properties farms, stores, warehouses, slaughter facilities, processing plants, fish nurseries, ships, aircraft, trains, vehicles, boxes, packages, and packaging items related to aquaculture in the past, this was limited. Furthermore, under the new law, the National Fishery Service will administer the preparation of the environmental information report INFA to monitor the sanitary and environmental conditions of cultivation sites, which in the past was done by consultants hired by the firms. In addition to the above, the National Fishery Service was granted the authority to stop the transit of any vessels between macrozones as well as between barrios in case of a sanitary emergency – in the past, this was under the jurisdiction of thenavy. The above illustrates some of the major changes stipulated in the law. These actually deal with issues that are critical in managing NR. The concession rights system defines the access and ownership of the NR, sanitary and environmental regulations while the collective management system barrio defines the rules of the game and the enforcement authority of the public sector. The barrio may introduce interesting dynamics because it will create an opportunity to build social norms within each barrio that may help with the enforcement of informal rules in future. It must be emphasized that it is not known whetherthese changes were implementedas intended. As Greif 2008 stated, formal law can be changed but whether the behavior of stakeholders can be changed accordingly depends on whether they are also motivated to change theirbehavior. To understand extend to how institutions were transformed, the situation of the industry prior to, during and after the crisis need to be understood.The following sections briefly go over the history of the sanitary crisis by type of actors up to the implementation of the law and beyond .

3.3 Before the crisis 1 The private sector before the crisis: Salmon farming firms and Salmon Chile

In the period from the late 1990s to the early 2000s, the Chilean salmon industry grew rapidly, even under fierce global competition. 10 This was also a time when firms diversified their products by species of salmon and level of process and market destinations Japan, the USA, the EU and Latin America. In the 2000s foreign direct investment FDI increased in this sector, which brought new entrant firms into the industry. Some of these new firms were from extractive fishery businesses, aiming to diversify their portfolios to compensate for a 10 The average price of salmon declined from US5.9 per kg in 1992 to US3.1 per kg in 1999. As a result, mergers and acquisitions took place in order to 1 increase the scale of production to lower unit costs and 2 secure inputs and services through vertical integration within the main production line of salmon farming firms including fish feed, eggs and smolt production pisciculture, the fattening phase, and processing. 58 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 declining share of extractive fishery. Some were global players such as Cooke Aquaculture Inc. and Leroy Groups. Others were firms run by investment companies in Chile. These new firms located their production sites in the 11 th and 12 th regions because the more favorable production sites in the 10 th region were no longer available see Table 1. Table 1. Description of the main new firms entering the salmon industry in Chile 2004-2011 Firms Activities Year entered aquaculture Area of operation Other activiteis Origin of capital Note Salmones El Golfo Blumer seafood cultivation center 20052011 XI Extractive Fishery other seafood Chile Group Yaconi- Santa Cruz of Pesquera El Golf, extractive fishery Merged with ITATA in 2011 as Blumer Seafood Salmones Itata BlumerSeafood cultivation center 20062011 XI Extractive Fishery Chile Controlled by Sarquis family, Fishmeal and fishoil. Merged with El Golfo, 2011. Salmones Humboldt cultivation center 20062011 X Extractive Fishery other seafood ChileJapan Pesquera Coloso controlled by Chilean family Lecaros Menendez with group of businesmen; Purchased by Mitsubishi Japan in 2011. Salmones Cupquelan cultivation center 20042008 XI SeaFood business Iceland Canada Icelandic holding controlled nu Robert Gudfinnsson the changed the owner to Cooke Aquaculture, Inc Salmones Aysen cultivation center 2006 XI Extractive fishery, seafood ChileUSA Icicle Seafoods y Pablo Barahona, of ex executive of Salmones Tecmar Provi. Fish Farms cultivation center 2006 XI Extractive fishery Chile Pesquera Landes RiverFish cultivation center 2007 XII Investor multiple areas Chile Algeciras S A owned by Eduardo Elberg investor, real estate, automobile, supermarket Santa Isabel Tornegaleones cultivation center N.R. XII Investor salmon industry Chile Eblen group, Ex owner of Mainstream. Also owner of Marine Farm GMT, Salmones Andes etc. Australis Mar S. A. cultivation center, processing plant, egg and smolt production 2008 XI, XII,IX Food but controled by Investment firm Chile Belong to Australis Food Holding but run by the group of investors FoodCorp S. A Pacific seafood cultivation center 2008 XI SeaFood business Norway Leroy Group Acuimag SA egg and smolt production 2007 XII Investor controled by investment firms Chile Galmez family former owner of Almacenes Paris acquired 80 of company Source: Compiled by the author based on Revista Aqua , March 2007, March 2008 and November 2011. Note: N.R. = no record. While the industry was growing, there were sign of sanitary problem. Figure 2 demonstrates the increasing occurrence of sanitary incidents with the increase of production volume. Figure 2 Deterioration of sanitary conditions in salmon farming sites and increase of export Source: Based on SERNAPESCA, various years and Nieto, 2009 59 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 Table 2 demonstrates the decreasing trend in physical productivity as fish production increased. While the total volume of salmon production increased from 2003 onwards, other indicators also showed signs of deterioration. The average weight per fish at the time of harvesting declined from 4.4 kilograms kg to 4.1 kg, the number of days required for harvesting expanded from 487 days to 543 days, and the weight of salmon produced output per unit of input of smolt and egg decreased from 3.7 kg to 3.1 kg for the former and 1.3 kg to 1.1 kg for the latter. The economic and biological rate of conversion 11 deteriorated from 1.36 to 1.52 and from 1.24 to 1.34 respectively, i.e. more feed was needed to produce 1 kg of salmon. Table 2 also shows that the rate of fish mortality increased from 15 percent in 2003 to 25 percent in 2007. The cost of vaccines and antibiotics to prevent fish from getting ill also increased and so did the cost of feeding the fish as a consequence of the extension of harvesting time. 12 Despite all the economic and biological indicators pointing to a deteriorating trend in productivity from 2003 to 2007, we can observe that export in volume and value increased substantially; due to the higher price of salmon during the same period see the lower part of Table2. The growth of profit enjoyed by most Chilean salmon firms actually came from rising unit price of salmon and not from higher productivity; Table 2 demonstrates the decreasing trend in physical productivity as fish production increased. While the total volume of salmon production increased from 2003 onwards, other indicators also showed signs of deterioration. The average weight per fish at the time of harvesting declined from 4.4 kilograms kg to 4.1 kg, the number of days required for harvesting expanded from 487 days to 543 days, and the weight of salmon produced output per unit of input of smolt and egg decreased from 3.7 kg to 3.1 kg for the former and 1.3 kg to 1.1 kg for the latter. The economic and biological rate of conversion 13 deteriorated from 1.36 to 1.52 and from 1.24 to 1.34 respectively, i.e. more feed was needed to produce 1 kg of salmon. Table 2 also shows that the rate of fish mortality increased from 15 percent in 2003 to 25 percent in 2007. The cost of vaccines and antibiotics to prevent fish from getting ill also increased and so did the cost of feeding the fish as a consequence of the extension of harvesting time. 14 Above demonstrated that even thought the status quo of how the business ran being the same; gradual changes were happening both in terms of industrial dynamics as well as physical sanitation as the industry grew. 11 Economic conversion rate is the rate in which kilograms of feed converted into 1 kilogram of salmon in economic value terms. Biological conversion rate is only in biological terms. 12 One of the former directors of a salmon firm estimated the industry s total loss as a result of the ISA crisis at US550- 600 million. This included overall loss of biomass, loss of growth, loss of adding treatment costs, operational costs and processing costs Johnson, 2007. 13 Economic conversion rate is the rate in which kilograms of feed converted into 1 kilogram of salmon in economic value terms. Biological conversion rate is only in biological terms. 14 One of the former directors of a salmon firm estimated the industry s total loss as a result of the ISA crisis at US550- 600 million. This included overall loss of biomass, loss of growth, loss of adding treatment costs, operational costs and processing costs Johnson, 2007. 60 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 Table 2 Key Indicators for Productivity in Salmon Firms and Some Export Statistics 2 Role of Industrial Associations: The Association of the Salmon Industry The Association of the Salmon Industry SalmonChile 15 played an instrumental role 16 in the development of the industry and acted as the representative of whole salmon industry in Chile. 17 Since 2000, SalmonChile actively increased alliances in Chile through opening its membership to suppliers of inputs and services operating in Chile abroad, it was establishing collaborative links with similar associations in Canada and the USA. In Chile, the Association had an important role in negotiating policy decisions regarding aquaculture with the government and beyond. 18 During the high-growth period since the 1990s leading up to the ISA crisis, the industry was in a state of oligopoly, with SalmonChil e’s member firms controlling almost 92 of total exports of Chilean salmon. The association was the undeniably the representative of the 15 At the time of first establishment in 1986, SalmonChile was called the Association of Chilean Salmon and Trout Producers APSTC. APSTC limited its membership to producers of salmon and trout. In 2002 it changed its name to SalmonChile and opened its membership to input and service providers. 16 In the 2000s, the association created voluntary standards of traceability and systems and quality assurance for the salmon industry in order to respond to increasing international requirements. Instituto Technologia de Salmon Salmon Technology Institute, INTESAL, an institute associated with SalmonChile, created Integrated Management Systems Systema Integrado de Gestion: SIGES combining major standards in the global market such as ISO, OSHA, HACCP, and best-practice guidelines. SalmonChile was trying to harmonize SIGES to global standards among the members of Salmon of the Americas in 2004. The harmonizing of standards continued until recently, as SalmonChile signed an agreement in 2010 to launch standards called SALMONGAP, the first internationally recognized standards for the cultivation of salmon in Chile following the GLOBAL GAP Ibieta et al. 2011. 17 The association supported exporting salmon firms by first creating uniform quality standards and, second by marketing to different destinations to protect and increase the position of Chilean salmon in the global market. The association also played a critical role in handling the accusation of dumping made by the USA, Canada, and the EU in 1997. 18 In the early 2000s, the association took part in formulating the National Aquaculture Policy PNA with the National Aquaculture Commission, and was a party to signing the cleaner production agreement with public sector organizations at the regional level. 61 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 Chilean salmon industry 19 and exercised its power in negotiating with the government on various aspects in regard to regulations. Most of the small and medium firms were not members of SalmonChile; however, as long as they had common external enemies —such as NGOs, buyers or government —these firms enjoyed positive externalities created by Salmon Chile as free riders. 3 The public sector before the crisis: Undersecretariat of Fisheries and Aquaculture and National Fishery Service a The evolution of the legislative environment for the aquaculture sector The Undersecretariat of Fisheries and Aquaculture and the National Fishery Service are the two main public organizations dealing with fishery resources. The role of these two institutions during the 1970s, 1980s, and 1990s 20 regarding aquaculture, particularly the salmon industry, was more developmental than regulatory, trying to encourage the incipient salmon farming industry to grow rather than to control or regulate its activities. This was because “there was nothing to regulate as the scale of production was not so large ” interview, Ms. Saa 2011. In the 2000s, the government recognized the importance of aquaculture in the national economy. The first action taken by the public sector was to promote its growth further. The Undersecretariat of Fisheries and Aquaculture established several measures 21 to promote the industry. One of these measures was to shorten the period for granting of concession rights to firms so that they could quickly expand operations in the sea. 22 As a result, the number of granted concessions increased significantly from 2003 to 2005 Iizuka and Katz 2011see Figure 3. 19 This view was also shared by Mr. Odebret, the Manager of SalmonChile interview, Mr. Odebret, Dec. 2011. 20 In the 1990s, many legilations in this sector was made. The General Law of Fishery and Aquaculture: LGPA was passed in in 1991; Areas appropriate for the conduct of aquaculture: AAA, and Supreme Decree No. 475 1994 to define the use of Chil e s littoral coastline by the Ministry of National Defence, DS No.499 as passed in 1994, the National Register of Aquaculture and DS No. 464 in 1995 to disclose information about fishery and aquaculture activities; and the Basic Environmental Law LBMA, which took effect in 1994 Law No. 19.300 were introduced. 21 In 2001, the National Commission for Aquaculture was created and the National Aquaculture Policy PNA was established in 2003, aiming to develop the industry with a clear target: to double the value of exports of salmon in 10 years from US1200million in 2004 to US2400million by 2014 interview, Mr. Norambuena 2011; interview, Mr. Sandoval 2011. 22 In order to cultivate salmon in the open ocean, firms were required to obtain concession rights; however, this process took rather a long time – on average between seven and eight years interview, Mr. Sandoval, Nov. 2011. A shorter process was achieved during the period of 2003 –6. This corresponds to the period when Mr. Sandoval was Undersecretary of Fisheries and Aquaculture. Figure 3. Growth of concession rights granted by the Undersecretariat of Fisheries and Aquaculture Source: Undersecretariat of Fisheries and Aquaculture. Note: 2011 is a preliminary figure. 62 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 In the early 2000s, new regulatory measures 23 for this industry were being introduced. This is partly because the increasing scale of activities had resulted in a visible impact on the local environment and partly due to bilateral trade agreements that Chile was about to sign required environmental regulations to be clearly stipulated in the law. Despite the establishment of these regulations, they were not effectively enforced during that time. This was partly due to underlying pro-growth sentiment within the country and lack of resources for enforcement and monitoring interview, Mr. Norambuena 2011. Instead, private –public voluntary agreements i.e. Clean Development Agreement: Acuerdos Produccion Limpia: APL were adopted, giving Salmon Chile the role of monitoring and evaluating the environment and sanitary performance of its member firms, while government continued to play a relatively minor role. This self-regulation and governance under Salmon Chile reached its peak in the period just before the ISA crisis because the government “left the industry alone” during 2006–7 interview, Mr. Sandoval 2011. 24 b Organizational changes in the public sectoraround the time of crisis Historically, extractive fishery was the main fishery activity in Chile. Hence the extractive fisheries had been allocated more personnel and higher budgets. This continued even after the growth of aquaculture surpassed that of extractive fishery in the late 1990s because changing the allocation of resources 25 required modification of legal documents. While the above is true, evidence from the interview Ms. Saa in 2011 revealed that gradual de facto organizational adjustments had already beenunderway in the Undersecretariat of Fisheries and Aquaculture for a few years prior to the formal legal changes in 2010. 26 The situation was the same in the National Fishery Service, where a section that dealt with sanitation for aquaculture had been established 27 in 2006 with eigh tpeople to respond to increasing numbers of sanitary incidents in aquaculture. By 2010, this unit had gradually evolved into a larger unit with 65 officers allocated bothat headquarters and in regional offices, and an emergency budget had been established to deal with crises interview, Ms. Gallardo 2011. Neither change, at this stage, triggered the large institutional change. The brief review of history of public and the private sector prior to the crisis revealed that the whole industry was surrounded by pro-growth sentiments under the strong leadership of SalmonChile. The government had less presence in regulatory power while the SalmonChile was in charge of monitoring and evaluation of environmental and sanitary regulations. There were small changes taking place both in the private and public sectors. In the private sector, it is the entrance of new firms and in public sector and in public sector, it is the cumulative changes of way things are done in respective organizations responding to the changes in the industry. 23 These were DS No. 320 on environmental regulations for aquaculture RAMA and DS No. 626 on measures for protection, control and eradication of high-risk diseases for hydrobiological species RESA in 2001. 24 No contact took place between the Undersecretary of Fisheries and Aquaculture and SalmonChile between 2006 and 2007. This was due to the different priorities put on this sector more towards small-scale fishery by the new Undersecretary of Fishery, a successor of Mr. Sandoval, at that time interview, Mr. Sandoval, Nov. 2011. 25 This includes changing the organizational structure and the allocation of resources in terms of number of employees, positions, and expertise of employees. It was found that many additional staff are hired as consultants due to the limitations in the number of official posts interview with Ms. Saa 2011. 63 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 3.4After the crisis 1 Behavior of firms After the sanitary crisis hit the industry in 2008, firms took the following actions: 1 they commenced the search for a technological solution to the ISA virus —such as vaccination; 2 they began laying off employees at the suspended cultivation centers and associated processing plants to reduce costs; and 3 they initiated the transfer of salmon farming operations to the non- contaminated areas in the south, in the Austral regions Aysen and Magallanes, the 11 th and 12 th regions, respectively. Although the seriousness of this disease was well understood by the farming community, in its early phase this incident was considered to be a strictly sanitary problem that could easily be contained within the Los Lagos the 10 th region Ibeita et al. 2011. a Search for technological solutions abroad The six large exporting salmon farms Salmones Mainstream, Salmones Multiexport, AquaChile, Camanchaca, Los Fiordos, and Marine Harvest in Chile, got together to seek a technical solution to ISA, first locally Aqua.cl 21 Nov. and 11 Dec. 2007, then internationallyAqua.cl, 3 July 2008. Various technical options were explored, such as vaccines and medications; however, it soon became evident that ISA could not be solved by technological solutions alone; it required fundamental change in the methods of production and management. b Layoff of employees —leading to fierce union conflicts and affecting the regional economy In 2008, many cultivation centers were suspended from salmon production due to the ISA virus in the Los Lagos the 10 th region. As a consequence, in just one year the industry reduced its labor force by 60. This created a sudden shock to the regional economy, as the salmon industry was employing about 90,000 people 35,000 direct and 55,000 indirect in the 10 th region where there were very few alternative job opportunities. Fierce labor disputes occurred in reaction to the lay offs. These involved unions of the salmon industry Labor Union for Salmon Industry: La CONTRASAL: Confederacion Nacional de Trabajadores del Salmon de Chile established a few years earlier as a result of an incident in 2006. Union actions gradually started to become violent, finally worsening to a level where SalmonChile had to ask the government to intervene. The union movement started to involve NGOs and the international media to generate a wider public awareness campaign, making it very difficult for the association to control and needed to ask government to intervene. 26 The fishery administration was initially placed under the Ministry of Agriculture but was transferred to the Ministry of Economy, Development and Tourism in 1978. This was due to the export potential of extractive fishery at that time. Tasks related to fisheries were divided in the following manner: the Undersecretariat of Fisheries makes regulations and policy while the National Fishery Service enforces and regulates. There were other fishery-associated institutions, such as the Undersecretariat of Marine and the Institute for Development of Fishery IFOP. The former has been involved in granting permission for the use of coastal areas as well as control of shipping used in maritime transport. The latter is a private organization with public origins dedicated to conducting applied research on fishery for policy purposes. Until recently, IFO P s research was mainly dedicated to extractive fishery but currently IFOP is increasingly becoming involved in regulation-setting research. 27 Initially, this was a small unit consisting of eight people: four officers from the Fish Sanitary Unit and four officers from the Fish Administration Unit interview, Ms Gallardo 2011. 64 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 c Relocation of salmon firms to uncontaminated areas 11 th and 12 th regions —raising fears and resentment in the regions After ISA crisis, many large firms started to relocate their cultivation sites to the less contaminated areas in the South, first to the Aysen the 11 th region then to the Magallanes the 12 th region. This migration trend is evident from the numbers of applications submitted to the government for concession rights. The boom in applications had already commenced in 2007 in the Aysen due to lack of space in the 10 th region, with an increase in the number of applications from 962 to 1249 by 2008. In the Magallanes, there were only 14 concessions before 2007. This increased to 70 in 2008 and by 2010 the government had received 1600 applications Aqua.cl, 18 Nov. 2009. The rapid migration of the salmon industry in the Aysen and Magallanes alarmed regional stakeholders such as small-scale fishermen, the tourism industry, and civil society. Their concerns were expressed via relevant representatives civil society, NGOs such as ECOCEANO, AstroChile: Associacion de Empresas truismos de Zona Magallanes etc. to the various regional authorities governors, senators, congressmen. The concerns of these regional stakeholders became a reality when the ISA virus was detected in the Magallanes in the latter part of 2008 Aqua.cl, 3 July 2008 and by the beginning of 2009, the Aysen had been declared the new epicenter of the ISA virus by the government Aqua.cl, 12 Jan. 2009. As a result, despite the positive economic impacts that the industry may have brought to the communities, the regional authorities expressed concern over the rapid expansion of salmon farming activities without proper environmental assessments or coastal planning, and warned of potential conflicts with existing regional economic activities. To appease fears of the rapidly increasing presence of the salmon industry in the regions, SalmonChile had to make an official statement agreeing to give sufficient consideration to regional coastal planning and the identification of appropriate areas for aquiculture AAA, requiring the involvement of a wider set of stakeholders, including regional government. The initial short-termoriented actions taken by the firms —searching for a cure, laying off workers, and moving production sites to the south —created a chain reactionand resulted in the involvementof new stakeholders —such as labor unions, regional governments etc--as the critical part of new institutions in the making. 2 Actions taken by Salmon Chile after the crisis Salmon Chile made a proposal to the Roundtable for possible preventive measures from the producer s’ perspective. The proposal consisted of 44 suggestions with the recommendation that Salmon Chile is in charge of monitoring and evaluation of member firms. The following are the main points of the proposal: 1 Production coordination: establish barrios or neighborhoods of concessions where all firms can participate in joint management of sanitary and environmental conditions by complying with measures such as resting periods fallowing and biosecurity; 2 Control of eggs and smolt: improve control of sanitary conditions for both imported and national eggs to reduce risks of contamination. This includes control of domestic eggs by INTESAL associated institute of Salmon Chile via certification and implementation of government quarantine for imported eggs; 3 Restrictions on rearing smolt in lakes and tanks: install biosecurity measures and a series of restrictions; 4 Restrictions on the transport of fish: prohibit the transport of fish that are contaminated or suspected of being contaminated with the virus; 65 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 5 Improved biosecurity of freshwater sites: conduct diagnostic tests to check minimum biosecurity, incorporating a program of routine inspection controlled by INTESAL. Adapted from Aqua.cl, 21 Nov. 2008. Most of suggestions made by Salmon Chile were included in the Ley Acuicultura Ley 20.434 40 out of 44. This demonstrates that the new law was the outcome of close negotiations between producers represented by Salmon Chile and the public sector. While many suggestions made by Salmon Chile were adopted into law, Salmon Chile was not assigned the role of being the agent for the monitoring and evaluation of member firms Aqua.cl, 17 Mar. 2008. Instead, it was decided that government National Secretary for Fishery Services was to deal with enforcement, monitoring and evaluation. This decision has much to do with the issue of legitimacy and the changing power of Salmon Chile before and after the crisis. 3 International media influences the behavior of international buyers and consumers The sanitary incident in the Chilean salmon industry brought the issue under the scrutiny of the international media. On 27 May 2008, as the ISA crisis started to unfold, the New York Times NYT published an article critical of the practices of salmon farmers in Chile. This article accused the industry of environmental malpractice and overuse of antibiotics. These claims were not new, as similar claims had already been made by domestic NGOs such as Fundacion Terram and ECOCEANO as early as the beginning of 2000. Nevertheless, the accusations made by such a widely distributed and well-respected international newspaper as the NYT had substantial impacts on international buyers and consumers Barton and Floysand 2010. Soon after the publication of this article, an international buyer in the USA, Safeway, reduced salmon procurement from Chile. All the stakeholders that were related to the industry in Chile —SalmonChile, the Chilean government agencies, Chilean Chambers of Commerce SOFOFA, and the Chilean Embassy in the USA —rushed to defend the industry against the claims by the NYT ; nevertheless, comparable media coverage of the salmon industry continued: The Economist 30 June 2009, “Chile’s stricken salmon farms: Dying assets, a bankrupt industry faces reform ”, Nature 17 June 2010, “Call for cooperation to contain damage by Chil e’s salmon farms” and Time magazine 22 June 2010, “The price of Chilean Salmon” all questioned the environmental sustainability of this industry. As the industry had come to be recognized as an important global player, it was not immune from being monitored by the international media, NGOs and buyers and consumers. Their role as the influencial stakeholder of institution that shapes the behavior of firms and of the industry increased from a far. 4 Local NGOs —building international and local networks to increase negotiating power There has been an increase in the number of environmental NGOs in Chile 28 since the end of the 1990s and particularly since the early 2000s. This has brought new important actors into the salmon industry, such as Chilean NGOs working towards the sustainability of salmon aquaculture. These local NGOs began to make alliances with international NGOs as well as with local civil movements from the latter half of the first decade of the 2000s. For instance, in 2006, a joint venture among international and domestic NGOs, such as Oxfam, Terram, Canela de Nos, CENDA and the National Trade Union Confederation CUT, created an organization called OLACH 29 —the Labor and Environment Observatory of Chile—in July 2006 Barton and Floysand 2010. Following the establishment of OLACH, several campaigns against unsustainable salmon farming practices took place, such as a joint campaign 66 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 between Oxfam and Fundacion Terram under the joint slogan “Sin miedo contra la corriente” ‘Against the Current without Fear’ in 2008, as well as the “Pure Salmon Campaign” by a Norway-based NGO in the middle of the first decade of the 2000s. These NGOs have started to gain more power in influencing international consumers and buyers through their extended networks. The tactics and financial bases of these Chilean NGOs have also become more sophisticated as they are strengthening their collaboration with the international media. 5 Financial Debt and Banks —Influencing the Firms’ Financial Viability Large private salmon firms continued to borrow money from banks to invest in their businesses even after the crisis until mid-2008. These investments were mainly made in order to: 1 transfer their production sites to Southern regions; and 2 secure a supply of domestic eggs and smolt fresh water phase in order to circumvent restrictions on imports of eggs. Many major exporters 30 planned to invest in closed system pisciculture equipped with water recycling plants to avoid exposure to contamination. Furthermore, new entrants 31 were also making substantial investments in infrastructure and acquisition of new cultivation centers. When a decrease in salmon production became evident in 2009, banks started to show concern about their loans to these firms Baillarie, Kehdy and Auszenker 2010 because typically they view the products salmon as collateral. Now they saw their collateral being wiped away due to the sanitary crisis. As the result, banks became more hesitant in providing finance to more high-risk firms. This behavior of banks divided farmed salmon firms into two groups: “winners low risk ” and “losers high risk.” The winners were those who were not as affected by the ISA virus either because they had cultivation sites in the less affected locations, 32 had implemented sanitary management methods, 33 or produced species that were less vulnerable, such as coho and trout. 34 The losers, on the other hand, were those whose cultivation centers were in affected areas of Xth region 35 who followed intensive production methods, and who farmed Atlantic salmon, the species affected by ISA. For instance, new entrant farms with extractive fishery origins such as Salmones Itata, Golfo, Humbolt were able to access investments to acquire new cultivation sites as well as in freshwater plants in Biobio, the 9 th region while many incumbent firms had difficulty in getting finances. The difficulties in getting access to finance for incumbent firms enlarged the gap between the two groups. Figure 4 shows how the share of exports by the top five firms decreased during this period while the proportion by the rest of the firms increased from 2008 to 2010.It is possible to say that access to finance may have shifted the power balance and industrial dynamics within the member firms of SalmonChile. 28 This has been documented in detail in Iizuka 2003. 29 As of 2013, OLACH does not seem to be in operation. 30 This included firms such as AquaChile, Marine Harvest, Multiexports, Salmones Friosur, and PescaChile. 31 Salmones el Golfo, Humbolt, Itata see Table 1. 67 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 Figure 4: Share of exports by size of firms Source: Based on Bjorndal and Aaland 1999, Aquanoticias , May2002, Revista Aqua , 2008, 2010. 3.5Subsequent changes 1 Salmon Chile —changes in power dynamics among the member firms As mentioned above, the crisis changed the internal power dynamics within the industry, particularly within Salmon Chile where incumbent large firms had dominance. It is conceivable that there were growing tensions between the group of incumbent firms and new firms due to the damage received during the crisis. These tensions led to the departure several large firms from the association: AquaChile, the founding member and the pioneer of Chilean salmon farming, Invertec Pesquera Mar de Chiloe and Salmones Antartica left the association At the beginning of the crisis in 2007 SalmonChil e’s member firms 25 producers and 50 suppliers contributed 92 of total Chilean salmon exports Aqua.cl, 18 Jan. 2008. In December of 2011 Salmon Chile represented about 70 of total exports with 34 firms of which 17 were pisiculture and 14 suppliers interview, Mr. Odebret 2011. SalmonChile is still a dominant player in terms of aggregated export value by the member firms; however, its role within the industry changed significantly after the crisis. SalmonChile is no longer considered to the representative of the whole salmon industry in Chile; its ability to coordinate the entire industry was substantially undermined. 2 Creation of ACOTRUCH by small and medium salmon producers In September 2009, a new association of salmon farming industry, the Association for Producers of Coho Salmon and Trout of Chile ACOTRUCH, was established among five small and medium coho and trout salmon producers in Chile Comercial Mirasol SA, Cultivos Marinos Lago Yelcho SA, Salmones Aysen SA, Salmones Caleta Bay SA. These firms produce mainly coho salmon and trout, types of salmon not affected by sanitary crisis.The firms were dissatisfied 32 These are mainly the new entrant firms. For instance, Salmones Cupquelan, whose cultivation center was in a secluded with the government measures taken after the sanitary crisis, and felt they wereoverly focused on Atlantic salmon producers. ACOTRUCH was soon incorporated into the Commission Nacional de Acuicultura and started to participate in discussions at the Roundtable. area in Aysen the 11 th region, was considered for a time to be one that had good sanitary management until its cultivation site was also affected by the ISA virus in 2011. 33 Salmones Friosur was considered to be one company that had implemented such methods, as it was not affected by ISA for a long time. It was thought that it might have had a different sanitary management system due to greater experience in sanitary conditions as the company also deals with chicken and pork. 34 Those firms that produced a higher percentage of salmon coho, for example, Mirasol. 35 For instance, Marine Harvest was the top exporter in 2007 and in the first half of 2011. It remains the eleventh largest exporter of salmon by valueas of 2013. 68 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 ACOTRUCH considered that the government favored large Atlantic salmon producers while penalizing non-Atlantic salmon producers in their handling of the crisis. For instance, joint management of the barrios included coordination of the production calendar. This was difficult for small and medium-scale coho and trout producers. First, coho, trout and Atlantic salmon are different species and have distinctive production calendars; second, smaller producers that did not have alternative cultivation sites in different barrios were forced to go out of business during the three months of the following period. Furthermore, complying with numerous biosecurity measures to prevent the re-occurrence of ISA was costly for smaller producers without economies of scale, while these measures largely benefited the larger Atlantic salmon producers. Since its establishment, ACOTRUCH has continued to attract new member firms. 36 Some of these firms are former members of SalmonChile. In other words, alternative organizations to SalmonChile are on the rise, altering the power balance within the sector. 3Association of suppliers Suppliers of services were also strongly affected by the crisis 37 due to a decline in demand for their services interview, Ms. Zorzano 2011. Several associations represent formal supplier firms 38 as follows: Association of Net and Net Service Industries ATARED, the Association of Regional Ship-owners and Maritime Services ARASEMAR, and the Association of Diving Companies ADEB all established in 2001, the Association of Veterinary Laboratories ALAVET and the Association of Southern Ship-owners ARMASUR. In 2011, the Association of Transport was created. Almost all the associations were established in the early 2000s to seek better negotiation terms with their clients, salmon farmers, as well as to differentiate themselves from informal input suppliers see Iizuka 2007. In 2011, the five different associations of suppliers listed above ATARED, ARASEMAR, ADEB, ARMASUR and ALAVET came together to make a joint claim on the sanitary crisis interview, Ms. Zorzano 2011. They felt that they were left out from the process of creating a new production system for the salmon industry, even though their activities were closely linked with the industry and would become subject to monitoring by the new regulations. Despite this, they were neither included in discussions at the National Commission for Aquaculture or at the Roundtable. In order for their positions to be reflected in the new production system, they made joint demandson the industry as well as to those in authority. Parallel to making claims for their positions in the salmon farming industry, suppliers of services also made strategic decisions for their own sake. They acted collectively to integrate common areas of operation, such as treatment of waste materials and setting standards for services to realize collective efficiency. These associations are now jointly diversifying in order to operate their businesses beyond Chile, in countries such as Brazil and Peru as suppliers to the fishery sector. This may change the future power dynamics within the salmon industry in Chile. 4 Discussion The case illustrates followings: first, the fact crisis happened due to globalization with weak presence of institutions to manage NR sustainably; second the institutions transformed gradually even with a shock, sanitation crisis, the changes actually started much earlier. The 36 The following firms joined ACOTRUCH in addition to the original founding members: Salmones Chile, Salmones Ice Val in 2009, Piscola Entre Rios and Sea Salmon Ltda in 2010, and Trusal in 2011. Trusal left SalmonChile to join ACOTRUCH. 37 The shock from ISA did not affect the suppliers immediately. Even after the suspension of cultivation sites, washing and maintenance work on nets continued. 38 There is a high percentage of informal activities among the service suppliers of the salmon industry. 69 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 detailed look in the change revealed that the series of changes were already set in places years prior to the sanitary crisis. The new aquaculture law is an obvious change in the formal rulesadopted after two years of negotiations among stakeholders. The law modified the ownership and access structure via a remodifying of the concession system, making the rules of the game more transparent and accountable, with clear statements on indicators to be collected and sanctions to be given in case of non-compliance.It also created a framework to generate collective actions via the introduction of the barrio system. After looking at the events that took place in the lead up to the introduction of the new law, it became evident that the law was not only an outcome of negotiations among the stakeholders but also a reflection of changing power relations and industrial organizations that took place cumulatively until the crisis made it evident. The industry itself had come under the influence of global buyers,as well as receiving greater attention from consumers owing to increasing presence of international media, and to growing pressure from NGOs. In another words, a change in formal ‘the rule of law’ is merely the tip of the iceberg in understanding the institutional changes that were taking place underneath cumulatively. As the earlier literature stated, path dependency, endogenous and exogenous causes of change can all play important roles in inducing institutional change. This case showed that the change, through it appears abrupt and sudden in form of law, had rather long prior preparation period of aligning the interestspowers of all the stakeholders to actually materializeas concrete change. Without this prior period, there are no motivations for stakeholders to accept the new institutions. Furthermore gradual integration to global market demonstrate the gradual integration of new actors —media, NGOs and unions—the primary forces of pushing the industry and public authorities towards more sustainable pathways. After establishment of the law, the temporary public –private Roundtable was to be dissolved; however, it was formally re-established by the Minister of Economy as a permanent organization called Mesa de Salmon the Salmon Roundtable Sernapesca 2012. It is possible that mechanisms to keep the dialogue among various public and private agents were essential in providing opportunities to align the interests of different stakeholders. The public research institute called Instituo Fomento de Pesquera IFOP is now taking a part in standardsrule setting activities by providing scientific evidence, after the passing of the Aquaculture Law. IFOP will accumulate local specific knowledge to support public authorities to appropriately monitor and evaluate the sanitary and environmental levels. However, the current policy does not go beyond knowledge accumulation at the local level. From this perspective, it is possible to say that the current institutions in place may fall short in projecting a long-term visionstrategy to steer the stakeholders towards more innovative pathways.

5. Discussion on policy