Changes made in the formal rules: The new Aquaculture Law

54 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 looking at this case is to attempt to understand the complex nature of institutional change in managing NR sustainably.The data and information for this case study were collected via numerous interviews with key informants conducted between Nov-Dec 2011 in Chile, as well as secondary sources, such as government reports and industry-specific news media.

3. Institutional Change in the Chilean Salmon Industry as a Reaction to the Sanitary Crisis

3.1 Background

The Chilean salmon industry, one of the leading exporters of farmed salmon, experienced successful growth from the 1990s until 2008. The emergence of this industry brought economic growth to the region by creating much needed employment. However, the situation changed drastically when the sanitary crisis emerged, caused by the spread of virus called infectious salmon anemia ISA, a disease that affects only Atlantic salmon see Box 1. This halted the growth of the industry and had a huge impact that extended well beyond the industry itself. In just one year 2008-9 the volume of Atlantic salmon 3 production fell by 47.8, from 370,000 tons to 203,000 tons Baillarie, Kehdy and Auszenker 2010, and sales fell by 12.9 to US2,169 million FOBin 2009. 4 Such a sudden drop in production created negative chain reactions throughout the regional economy, caused a high level of unemployment and the bankruptcy of many salmon farms, with a total estimated bank debt of US1600 –2500 million Larrain 2011. It is reasonable to say that this incident stunted the growth trajectory for this industry. Responding to the crisis government created a task force called mesa de salmon Roundtable in 2008. The Roundtable consisted of representatives from the relevant major public sectors and was placed directly under the authority of the president of Chile. It was considered that a rapid decision-making process to resolve the issue is achieved by limiting the participation public sectors. After almost two years of negotiation to find a solution to the problem by the Roundtable, a new legal framework, called Ley Aquacultura Ley No. 20.434 was established in Chile in 2010. The law modified a previous existing law, the General Law of Fishery and Aquaculture Ley General de Pesca y Acuicultura: LGPA, Ley No. 18.892 and resulted in the creation of new institutions that were more favorable to managing NR sustainably.

3.2 Changes made in the formal rules: The new Aquaculture Law

The new aquaculture law made several major changes to the Chilean salmon industry in reaction to what had happened in the crisis. These changes contributed to the transformation of the institutions of this sector. These changes took place in: 1 the concession rights system ownership system; 2 the sanitary and environmental regulations; 3 the collective management system among producers called barrios, or neighborhoods, and macrozones; and 4 the strengthening of the enforcement authority of the public sector. 1 Currently, the ISA virus affects only Atlantic salmon. 2 The gap was caused by a rise in the price of salmon. The decrease in the value of exports was smaller than that of volume due to the rise in price per kg of salmon caused by the shortage of salmon that occurred as a result of the decrease in production in Chile. 55 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 1 The concession rights system: concession rights as assets All the firms operating in the ocean need a concession right granted from the government to conduct farming activities. In the past, this concession right was merely a user right. The new law made the right a transferable asset or property, which can then be used as collateral for bank loans. This modification was made to ease the debt problem of firms. In the process of converting concession rights into assets, concerns over the possible ‘privatization of the ocean’ in extreme circumstances were expressed. As a result, two additional amendments to the law were made: first, limiting the concession ownership to a period of up to 25 years,5 with the possibility of an extension on the grounds of complying with environmental and sanitary regulations; and, second, placing a 20 cap on the area in one region that anyone company can own. Furthermore, the concession fees paid by the firms to the government were increased substantially6 to finance the enforcement of regulations and regulation-oriented research. 2 Strengthening sanitary and environmental regulations: increased transparency Existing sanitary regulations7 – especially those concerned with the imports of eggs and movement of fish stocks – were strengthened to limit the transmission of pathogens. This installed a system of firm-level reporting on sanitary information to the government by utilizing a clear set of indicators. The indicators to monitor sanitary conditions include optimal fish density and fish mortality rates.This was the first time that documentable measures, methods, and standards for implementing sanctions had been clearly stipulated. The use of chemicals and antibiotics was also restricted. Furthermore, sanitary and environmental measures for aquaculture were made an integral part of the zoning plan for coastal areas in the regions. 3 Creation of new institutions to encourage collective action: barrios neighborhoods The most drastic change introduced by this law was the creation of a new systembased on barrios 8 neighborhoods,9 which are comprised of a group of firms concession rights located within a similar geographical, oceanographic, and epidemiological area. The law requires producers in the same barrio to collaborate on environmental and sanitary management. More specifically, firms are required to synchronize production calendars either 3 The previous law did not set limits on the duration of ownership. 4 The law requires a monthly payment of 2UTM per ha. of cultivation center, up to the first 50 ha. and 4UTM per ha. for the area exceeding 50ha. 1UTM Unidad de fomento was US46.58 as of March2012. The payment was increased from 2 to 4 UTM per ha. per month to 10 UTM per ha. per month. The increase of revenue from concessions patente in Spanish was used to finance enforcement of regulations and research Sernapesca, interview, Mr. Burgos 2011.In 2012, the fee was expected to rise further to 35UTM per ha.as of 2011. 5 These are Appropriate Areas for Aquaculture AAA, Regulation on the Environment Reglamento Ambiental para la Acuicultura: RAMA and Sanitary Regulation Reglamento Sanitario para la Acuicultura: RESA. AAAs share common epidemiologic, oceanographic, operational, or geographic characteristics, and have complied with both environmental and sanitary regulations before granting concessions. The identification of AAAs requires examining various information including alternative uses of the sites, such as natural reserves, tourist attractions, , harbors and natural habitats for other hydrobiological resources, as well as areas set aside for indigenous populations. 6 In 2010, the 10 th and 11 th regions were divided into seven macrozones four in the 10 th region and three in the 11 th region and 58 barrios 24 in the 10 th region and 34 in the 11 th region RS. No 450; see Figure1 but this was modified into 61 barrios 24 in the 10 th region and 37 in the 11 th region in 2011 Subsecretaria de Pesca 2011 res, extebti 18.96. 7 This refers to the situation at the time when law was issued. Currently there are four zones and 23 barrios in the 10 th region and three zones and 33 barrios in the 11 th region. In the 12 th region, 17 areas have been identified but zones and barrios have not yet been determined. 56 Forum Tahunan Pengembangan Iptek dan Inovasi Nasional V, Tahun 2015 To synchronize their production calendars, firms in same barrio must agree one production calendar sowing, harvesting, medication treatment, and three months of fallowing to reduce risk of sanitary incidents. They are are obliged to jointly implement regulations on fish escapes, respect an appropriate distance between cultivation centers and follow biosecurity measures for transporting fish, eggs and other necessary inputs. The regulation specified that the decision-making process within the barrio should follow the democratic rule of one concession, one vote. Currently each barrio consists of concessions of different owners firms and products species of salmon: coho, trout, salar Atlantic, which means the barrios bring together various stakeholders with diverse interests. The decision-making process within the barrio can therefore be interesting experiment of attempting to create social norms as explained by Osttom 1990, particularly given the lack of trust and social capital within the industry as illustrated byVignolo, Held and Zanlungo 2007. Figure 1 Neighbourhoods, barrios , and macrozones in 10 th and 11 th regions Source: Sernapesca 2010 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