An analysis commissioned by Peru’s National Fishery Society (SNP) found that Peru’s anchovy industry experienced a spike in regulatory costs from 2008 through 2017, even though profitability has fallen, resulting in lowered gains for its investors.
According to a statement published by the SNP, regulatory costs associated with fishmeal and fish oil have increased 15 percentage points from 2008-2017, even though profitability has fallen significantly due to a 40 percent drop in anchovy landings in the same period.
The SNP commissioned a study from the consultancy Ernst & Young, which found that this drop in landings came primarily from regulatory limitations and climatic factors. The result is an industry burdened by high regulatory costs, with shareholders who are unable to recover their investment at the same rate of other extractive industries like forestry, mining, or hydrocarbons.
“Profitability indicators such as net margin, profitability over shares and profitability over assets have deteriorated significantly. This unfavorable scenario has pushed fishing companies to increase their leverage,” the report said.
The report also projects four million MT of anchovy landings annually for 2019-2022, which would allow for some recovery, but remain well below other industries in terms of profits and returns. Considering any further regulatory restrictions or economic stress, these results could worsen.
“While recovery is expected for the sector in 2018, it is not expected to be sufficient so that shareholders obtain returns that would cover the results of bad years,” the report added.
SNP President Elena Conterno warned that this makes the Peruvian industry less competitive against other regional players. For example, in 2016 the average regulatory costs per metric ton of anchovy in Peru was USD 16.70 (EUR 14.58) per metric ton, in Chile it was only USD 13.80 (EUR 12.05) for the same unit.
Control and regulatory costs, as well as social commitments were blamed for this higher cost, according to the report.
“There is a myth that this is a buoyant industry but in reality this shows us all the contrary. What we have is an industry with high fixed costs, high volatility, little growth potential, high competition from substitutes, and it is not brining returns to its investors,” Conterno said.
The report found that these tax and legal obligations mean that on average fishing companies are paying costs equivalent to 50.4 percent of their operating profits.
Photo courtesy of WWF
