To fish or not to fish…

When the effects of a minor variation in temperature can change the dynamic of one of Peru’s top industries, it is difficult not to take a closer look at climate change.

Austral Group SAA is one of Peru’s leading industrial fishing companies. With operations throughout the Peruvian coastline, which is considered one of the most productive in the world due to the influence of important ocean currents (Humboldt and El Niño) [1], the company’s integrated supply chain ought to be sound. Nonetheless, the company’s last financial statements presented a net loss of S/ 8 million in 2015 (~ USD 2.5 million) [2]. So, why does a company with two consecutive years of net losses have a cumulative USD 60 million invested in technological innovation? [3] The answer: climate change.

 

Fishing Industry in Peru

 

Although the fishing industry has been a small percentage of the country’s GDP (0.4% in 2015) [4] it is still one of Peru’s most important economic activities; it provides basic food supply security and generates a significant number of related jobs [1]. Analyzing the fishing industry, it is key to consider that any change in temperature can significantly affect the behavior of marine life and hence the development of future fishing activities. Hence, the strong relation with natural resources makes companies in this segment subject to high variability even with small changes in temperatures. In addition, as the pressure on marine biological resources increases, there is an increase in government regulation. Some of the most important directives in the industry are related to the definition of selected fishing windows and schedules, as well as the definition of minimum requirements on technologies used for processing activities that reduce the impact of the industry to the environment [1].

 

Austral Group SAA

 

For Austral Group SAA, the variability translates into significant challenges, both concerning operations and sustainability. The company not only loses ability to plan ahead, as was shown in 2014 with the cancellation of the expected second fishing season due to environmental conditions [5], but also experiences an increase in regulatory pressures throughout its supply chain.

 

Having a vertically integrated operation in the fishing industry, Austral Group is increasingly vulnerable to climate change as the effects could have multiplying effects throughout the supply chain. The underutilization of vessels due to a prohibition or decrease in fishing permits, translates to further underutilized capacity in the production plants, which in turn lowers overall sales. In addition, as stated before, because the industry is increasingly reliable on government regulation, politics become a key activity within the company. The relation with government entities gains importance as the viability of the business is dependent how reasonable are the demands created. The company hence, has the incentives to become an active participant.

 

Austral Group SAA has taken several steps, and is increasingly becoming an integral part of the efforts to reduce the impact of fishing on climate change. To date, the company has not only been presented several national awards for eco efficiency in their operations [3], but is also an active participant of the Peruvian, Chilean and Ecuadorian Fishing Guild for Sustainability and Monitoring Climate Change, which focuses on gaining a better understanding about marine resources and the overall impact of climate change. Furthermore, the company has incurred in significant investments to reduce carbon emissions by updating their fleet vessel, increasing their usage of renewable energy resources and generating awareness programs among their employees and stakeholders. [3]

 

What’s next?

 

The direct impact that climate change has on Austral’s sales and capacity is a clear indication of the active role the company has to take in order to better understand the effects temperature changes as well as to explore possible solutions. Although the company has taken several steps in this direction, it is important for Austral to further understand their overall vulnerability to temperature variabilities and have concrete action plans for different scenarios. The study and prediction of marine biology reactions to certain changes may help to define possible reactions and have contingency plans in action.

 

Furthermore, the company could consider the possibility of aquaculture as a complementary process that could reduce volatility and vulnerability. Given its “farm-like” attributes, aquaculture provides the possibility to have better control on external factors if it is done in man-made facilities. This provides a security inventory if external factors affect the normal operations, or could be used to provide boosts to the marine environment by introducing breed animals into natural environments when needed. [6]

 

In conclusion, the overall fishing industry is severely stressed with the continuous change in world climate and is so far looking for solutions to mitigate the effects. The reality is, the fishing industry should look beyond – searching for new ways to adapt to new conditions and thrive in them. (794 words)

 

[1] El Perú y el Cambio Climático. Tercera Comunicación Nacional del Perú. April 2016. (http://www.minam.gob.pe/wp-content/uploads/2016/05/Tercera-Comunicaci%C3%B3n.pdf)

[2] Austral Memoria Annual 2015. Bolsa de Valores de Lima. (http://www.bvl.com.pe/jsp/ShowEEFF_new.jsp?Ano=2015&Trimestre=A&Rpj=CI0006&RazoSoci=AUSTRAL%20GROUP%20S.A.A.&TipoEEFF=MA&Tipo1=A&Tipo2=I&Dsc_Correlativo=0000&Secuencia=1&Cod_Secuencia=0)

[3] Responsabilidad ambiental en las empresas. Austral (http://www.minam.gob.pe/semanaclimatica/wp-content/uploads/sites/104/2015/12/5Responsabilidad-Ambiental-en-las-empresas-Adriana-Giudice.-Austral-Group.pdf)

[4] Indicadores Económicos. II Trimestre 2016. Banco Central de Reserva del Perú. (http://www.bcrp.gob.pe/docs/Estadisticas/indicadores-trimestrales.pdf)

[5] http://elcomercio.pe/economia/peru/produce-oficializa-que-no-habra-segunda-temporada-pesca-noticia-1780192

[6] http://www.nmfs.noaa.gov/aquaculture/what_is_aquaculture.html

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2 thoughts on “To fish or not to fish…

  1. Great article Talia! I believe this is a huge concern worldwide and even more to emerging markets such our own. I am ver interested in your thoughts of farmed fish as an alternative for the Austral Group SAA and being that you mention that this is the largest industrial fishing company in Peru, what is the economic reality for smaller fisherman ?

    I was very impressed with the dollar figure invested on technological innovation, amazing! I would love to hear more about what kind of research they are conducting and technological advancements made within the company or in the Fishing industry in Peru. Do you think in any way this investments will be affected given the latest agreements of the Peruvian government to limit the quotas on ton catch per year?

  2. Really fascinating blog post! 60 million USD seems like a lot — I wonder how that amount compares to what their competitors have invested? Have Peru’s fishing companies banded together to share best practices on how to tackle climate change or are the fishing companies only making changes as a result of regulatory pressure? Many capture fisheries worldwide have declined or collapsed in recent decades from overfishing, so I can only imagine how much global climate change will impact the fishing industry. In addition to the impact on the livelihoods of local fisherman and fishing companies like Austral, I also wonder what will be the impacts on the infrastructure in coastal communities due to the rising sea level. Additionally, climate change is expected to lead to increased storm activity (both more storms and more severe storms), which could further effect the fishing industry in Peru. Have you considered how Austral might deal with these effects of climate change as well?

    One press release from the Economic Commission for Latin America and the Caribbean claimed that “by the end of the century the losses would be around 30 times the size of the [fishing] sector’s current gross domestic product.” http://www.cepal.org/en/pressreleases/climate-change-peru-seen-affecting-fishing-high-andes-livestock-and-agricultural . It seems clear that drastic actions need to be taken now. Do you think the government is taking enough action? Does the government offer any tax subsidies for aquaculture to incentivize more companies to invest in it?

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