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Data rigging is latest Chile salmon farm scandal

Salmon
Nova Austral misreported its fish mortality data to regulators. Its salmon were dying in alarming numbers that had been hidden from the public.
(Robert F. Bukaty and Jason Leighton / Associated Press)

There’s this salmon-farming company located on the far southern tip of Chile that goes by the name Nova Austral. The company is quick to point out that its salmon are antibiotic free.

This is a big selling point. Farm-raised salmon loaded up on antibiotics grosses many consumers out. So the antibiotics-free kind can fetch premiums of as much as 30% over the regular stuff in international markets. (Salmon caught in the wild fetch still more, as much as four times farm-raised.)

Click on Nova Austral’s website, and it’s all images of frigid Antarctic waters and snow squalls and rugged Patagonian coastline. The name of the company’s brand, Sixty South, which can be found at New York’s Fresh Direct, among other places in the U.S., flashes across the home page. “Pure salmon, naturally,” it declares.

What the page doesn’t say is that the company was forced to acknowledge last month that an investigative report published by local newspaper El Mostrador was true: Nova Austral had misreported its fish mortality data to regulators. Its salmon were dying in alarming numbers that had been hidden from the public.

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Any number of scandals have hit the booming Chilean salmon industry in recent years. Like the time that some 900,000 fish escaped into the Pacific. And the time an algae bloom that environmentalists attributed in part to salmon farming wreaked havoc on the Chilean coastline.

There’s no suggestion that Nova Austral sold any diseased fish to retailers, but, still, this incident has touched a nerve in Chile — which produces about 25% of the world’s supply — in a way that those other incidents did not. Regulators are pressing civil charges; members of congress are calling for tougher regulation; Nova Austral’s top executive, Nicos Nicolaides, was abruptly pushed aside; and the price on the company’s foreign bonds plunged to as low as 60 cents on the dollar.

The saga also highlights another growing trend at a time when organic and green are all the rage among the world’s well-heeled consumers: The temptation to cut corners and to give products a veneer of sustainability is great. The practice is called greenwashing. And while Nova Austral may not have been greenwashing in a strict sense — the fish are, after all, antibiotic free — what it did is a direct relative of it: faking the data to make their organic product look greener than it actually is.

“What happened with Nova Austral is intolerable,” said Alejandro Buschmann, a biologist and a professor at Universidad de Los Lagos, headquartered in Chile’s main salmon-producing region. “This dishonest act casts a doubt over the whole salmon industry because there’s no evidence that the same thing hasn’t happened with other companies.”

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Nova Austral’s board cooperated fully with regulators and implemented measures to ensure accurate reporting of fish mortality, the company said in an emailed statement. On a call in July, Harold Meyer, a board director and a principal at Bain Capital, said the investigation identified “unacceptable shortcomings.” He added that Nova Austral has “never compromised standards for production, product integrity and sustainability.”

Private equity firms Bain Capital and Altor Funds took control of Nova Austral in 2014 after one of their companies bought it for $183 million. The two buyout firms didn’t return requests for comment.

The Sixty South brand is often sold in stores selling organic and healthy food products, such as Lunds & Byerlys, with 27 upscale stores in Minneapolis, and at many restaurants and hotels, including the Loews New Orleans. About a third of its production was sold in the U.S. last year. Fresh Direct, Loews Hotels and Lunds & Byerlys did not immediately reply to emails and calls requesting comment.

The salmon industry has long been riding the healthful eating trend. Demand for the high-protein, low-carb fish grew an average 4.5% annually in the decade ending 2017, faster than that for poultry, pork or beef. And Chile, second only to Norway in producing the most salmon, has benefited, with exports more than doubling over the last decade, to $4.7 billion last year.

Indeed, salmon is Chile’s top export outside of mining and, with double-digit growth in the last three years, is seen as key to diversifying an economy that has been stuck in slow growth and overly reliant on copper production.

But now the series of incidents is threatening to give salmon farmers a reputation they can ill afford — as cowboys of sorts who play fast and loose with rules.

When 30 million salmon died in 2016, fisherman on the island of Chiloe rioted for weeks as dead clams washed up. The industry blamed seasonal algae blooms, but a Greenpeace investigation six months later said 5,000 tons of dead salmon were dumped into the open seas, worsening the effect of the algae bloom.

Some Chilean farmers are already distancing their product from the country, marketing it “as Patagonian salmon, not Chilean salmon,” said Gorjan Nikolik, associate director of animal protein at RaboResearch Food & Agribusiness. “For the fish raised in Patagonia, their differentiation will be the purity of their waters.”

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Nova Austral isn’t a big player in Chile, with about 3% of total production, but it has tried to stand apart from competitors. Chilean farmers use high levels of antibiotics to fight diseases that spread more easily in Chilean waters, especially when fish are bred in crowded cages — 1,400 times more antibiotics than Norway to produce the same amount of salmon in 2017, according to environmental group Oceana.

By contrast, Nova Austral uses no antibiotics, a strategy that earned it plaudits from environmental groups and a certificate for responsible farming from the World Wildlife Foundation’s Aquaculture Stewardship Council. That, in turn, allows it to get premium prices from salmon consumers who are increasingly concerned that heavy use of antibiotics can spawn drug-resistant super-bugs.

More and more retailers, such as Whole Foods, require all fish and shrimp in their stores not to contain antibiotics or hormones, according to Xian Deng, an analyst at Berenberg Bank in London.

But Nova Austral’s pristine image crashed in June with the first reports that it had doctored the number of salmon that had died at its farms. Chilean regulations require fish farmers with mortality above 15% to cut their fishing stock on the next cycle to avoid the spread of diseases. The newspaper investigation revealed executives kept a double accounting of mortality rates and consistently reported deaths below the 15% threshold.

While the latest scandal has prompted calls for tougher regulation, Nova Austral is likely to face at most a fine of about $200,000. Potentially more damaging, the Aquaculture Stewardship Council suspended its certification for responsible farming.

“The industry and the government should think long and hard about events such as this one,” Buschmann said. “This case proves that regulators and international certification agencies can be easily fooled.”


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