Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth / How Chile Transformed Its Salmon Industry Productivity
Transcript
- Lucas: If you look at global salmon production, Norway has dominated for decades. But over the last 20 years, a second player has quietly become a productivity powerhouse: Chile. Luna: I think most people know Chile for copper and wine. Salmon is actually their third-largest export. Lucas: Exactly. And the numbers are staggering. Chile now produces about 25 percent of the world's farmed salmon — over 800,000 tonnes annually. The industry is worth roughly $5 billion in exports. But it wasn't always this way. Luna: What changed? I mean, fish farming isn't exactly high-tech manufacturing. Lucas: It's a great case study in how targeted institutional intervention — not just market forces — can transform productivity in a natural-resource industry. The turning point came in 2007, when the industry was hit by an outbreak of infectious salmon anemia, or ISA virus. Luna: Right, I remember reading about that. It nearly wiped out the entire sector. Lucas: It was catastrophic. Production fell by more than 60 percent in some regions. Farms were packed tightly together in the southern fjords, sharing water, sharing disease. The virus spread like wildfire. And at the time, the industry was highly fragmented — hundreds of small operators with little coordination. Luna: So the crisis forced a restructuring. But was that enough? Or did the government step in? Lucas: Both. The Chilean government, working with producers, implemented strict biosecurity regulations. They mandated fallowing — leaving production sites empty for months between cycles. They required single-year-class farming, meaning all fish in a given area were the same age, which broke the disease cycle. And they limited the density of farms in each bay. Luna: That sounds expensive. Smaller operators must have struggled. Lucas: They did. And that's part of the story. Many sold out to larger companies like AquaChile and Cermaq. The industry consolidated from over 200 producers in the early 2000s to fewer than 50 today. The bigger firms had the capital to invest in better feed, vaccines, and monitoring systems. But consolidation alone didn't drive the productivity gains. Luna: What else? You mentioned institutional intervention. Lucas: The key institution is the Salmon Technical Institute, or Instituto Tecnológico del Salmón, created in 2009. It's an industry-funded research body that develops best practices for feed composition, disease prevention, and environmental management. It's similar to the Norwegian model, but adapted to Chile's unique conditions — warmer waters, different pathogens. Luna: So they're basically standardizing knowledge across the industry. That's something small farms can't do on their own. Lucas: Right. And that's where the productivity leap came from. Between 2010 and 2020, Chile's salmon farming saw a compound annual growth rate in output per cage of roughly 7 percent. Mortality rates dropped from over 20 percent during the ISA crisis to under 5 percent. Feed conversion ratios improved by about 15 percent. Luna: Those are real numbers. So the combination of regulation, consolidation, and collective research created a flywheel. Lucas: Exactly. And it's a model that other commodity industries — think shrimp farming in Southeast Asia or beef in South America — could learn from. But there are limits. Chile's salmon industry now faces new productivity threats. Luna: Climate change, I'm guessing. Warmer water temperatures? Lucas: That, and harmful algal blooms. In 2021, a massive bloom in the Los Lagos region killed over 4,000 tonnes of salmon, costing the industry an estimated $100 million. The industry has responded by moving farms further south, into colder waters, and investing in early-warning systems and oxygenation technology. But those adaptations come at a cost. Luna: It's a constant game of catch-up. But that's productivity in the real world — it's never a one-time fix. Lucas: And that brings me to something I want to mention. You know, we spend a lot of time on this show digging into how industries get better — the policies, the investments, the hard choices. If walking through the economy with us has made something click for you, maybe it's worth the price of a coffee. If today's episode was useful, you can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep the show ad-free and focused on the substance. And trust me, we appreciate it. Lucas: So back to Chile. I think the real lesson here is about institutional memory. The Salmon Technical Institute doesn't just solve today's problems — it accumulates knowledge over time. Each disease outbreak, each bloom, each feed innovation gets codified and shared. Luna: That's the opposite of the fragmented, fly-by-night model that failed in 2007. Lucas: Exactly. And it's why Chile's salmon productivity story matters beyond just fish. It shows that even in industries tied to nature, you can engineer productivity gains through coordination. But it requires a level of trust and collective action that's hard to build. Luna: Are there other sectors in Chile that have tried to replicate this model? Lucas: The blueberry and wine industries have looked at it, but neither has the same level of disease pressure or export concentration. Salmon is really the poster child. And it's still evolving — the latest frontier is genetic selection. The institute is now working on breeding salmon that grow faster on less feed, in warmer water. Luna: That's basically the holy grail for aquaculture productivity. Lucas: It is. And if they succeed, it could boost output by another 10 to 15 percent over the next decade. But the institutional structure had to come first. Without the Salmon Technical Institute, those genetics would just sit in a lab. Luna: So the productivity gain isn't just the technology — it's the system that deploys it. Lucas: Exactly. And that's the takeaway for me. When we talk about productivity, we often focus on individual firms or technologies. But sometimes the most powerful lever is creating a shared infrastructure for improvement. Luna: I wonder if that could work in other commodity industries. Like, could a similar institute transform shrimp farming in Vietnam or India? Lucas: It's plausible. But Chile had a unique advantage: a small number of large players who could fund the institute collectively, and a government that was willing to enforce standards. Not every industry has that alignment. Still, it's a model worth studying. Luna: And worth borrowing, if the conditions are right. Lucas: Right. So next time you see farmed salmon at the grocery store, take a look at the label. If it's from Chile, you're looking at a product of one of the most interesting productivity turnarounds in modern agriculture. Luna: I'll never look at a salmon fillet the same way again.