MARKET SHOCKS AND DISEASE: THE IMPACT OF ISA ON CHILEAN SALMON

Chile's production of Atlantic salmon flattened out in 2005 after a decade of rapid production growth. It remained at a plateau of just under 500,000 metric tons (mt) until 2009, when the production was more than halved. In 2010, production was further reduced to about 130,000 mt, before it started to increase rapidly again reaching a 460,000 mt in 2013. The main reason for this dip in production is an outbreak of the disease Infectious Salmon Anemia (ISA). The reduction in Chilean salmon production was so large that salmon prices globally more than doubled. Because of the disease outbreak, the size of the Chilean salmon also changed, precipitating a substantial shift in which markets were served and which product forms were exported, and of particular interest is the development of the Brazilian salmon market.

From the late 1990s, the general literature indicates that there is a global market for salmon. However, the link between the American market and the rest of the word is weaker than between European and Asian markets. Moreover, it is strongest for the same product forms. On the other hand, there is also evidence that the integration is becoming strong with increased market size. Hence, the shocks caused by the disease outbreaks in Chile can provide additional insights with respect to the strength of market integration in the salmon market.

In this paper we investigate the degree of market integration between four product forms of Chilean salmon, fresh and frozen whole and fresh and frozen fillets, and for the fresh product forms we also consider the largest markets, Brazil and the USA. We also investigate the link to the Norwegian salmon price, as Norway is the largest producer. Since all prices are non-stationary, the market integration analysis is conducted using Johansen's cointegration test.

The empirical results indicate a highly integrated market for all Chilean product forms, but where frozen fillets are partially segmented. Hence, the development of the Brazilian market did not in any way disrupted the price determination process in Chile. Moreover, the Norwegian price lead all the Chilean prices, indicating that Chilean salmon prices is determined at the global market. This also implies that Chilean salmon producers did not gain any additional price increase during the disease crises due to an origin premium for Chilean salmon. Rather, all salmon producers benefited to the same degree of the price increase, with the difference that the other producers did not see any reduction in quantity produced.