Is the Peruvian Anchovy Industry doomed due to increasing sea surface temperatures?

Peru has been blessed with a large anchovy population along its coast, but the industry is facing challenges due to more frequent El Niño events. If Pesquera Exalmar, the 3rd largest fishmeal producer in Peru, wants to continue to thrive in this new volatile environment, changes will have to be made.

The Peruvian Anchovy Industry

The Peruvian anchovy fishery is the largest in the world, in terms of anchovy catches [1] and anchovy production [2]. The Peruvian fishing ground is very productive due to its location by two currents, the Humboldt current, and the Peru Coastal Current, which create coastal upwelling, a phenomenon that is ideal for anchovy populations [3].

Despite its privileged position, the Peruvian anchovy industry is extremely sensitive to ocean-climate variability, specifically to the El Niño phenomenon. Historically, the anchovy population has been inversely proportional to anomalies in the sea surface temperatures (SST, see figure 1). As SST increases materially under strong El Niño events, nutrients cannot rise to the surface and the plankton population consequently decreases, and the anchovy populations suffer as a result. [1] According to certain studies, strong El Niño events occur more frequently during periods of global warming, which has been witnessed in the last couple of decades. [4]

Figure 1: Peruvian anchovy landings, sea surface temperature (SST) anomalies [1]figure-1

Historically, the situation has been worsened by overfishing practices in the sector as occurred in years of very strong El Niño events, causing the industry to crash to almost irrecoverable points in 1972 and 1998. [5] Consequently, the Peruvian government has focused on improving regulatory quotas to disallow overfishing. In 2008, a new regulatory framework was implemented to not only impose a total quota for two separate seasons, but also to set the allocation to individual companies. During years of strong El Niño events, the government may cancel the fishing season or set a lower quota in order to better protect the sustainability of the anchovy population. [6]

Exalmar and Climate Change

Exalmar is the third largest producer of fishmeal and fish oil in Peru (AR). It has a quota of 6.61% of the Central-North area and 4.46% of the South Area and caught between 77-98% of its quota in 2015 depending on the sector. [2] Additionally, the company is vertically integrated as it catches anchovies and then produces fishmeal and fish oil at its plants. This means that in a bad year, not only do they have lower sales and lower utilization of their shipping vessels, but the company also has lower utilization at the plant level, further magnifying the negative impact of global warming.

Despite being a relatively profitable company with margins above industry average [7], its ability to generate cash flow is impacted by weather volatility. Lower catch levels directly negatively impact the company’s EBITDA levels, consequently driving up leverage ratios to unsustainable levels. If expectations of continuously increasing sea surface temperature levels are accurate, then the company’s financial metrics are likely to continue to deteriorate. An example of overall market sentiment is exemplified in S&P’s recent downgrade of Exalmar to a B- rating with a negative outlook. [7] Given all of this, it is my view that the company will have to take action and shift focus to a more sustainable business model.

The company has taken some actions towards sustainability. This includes making changes to its plants to obtain the ISO 14001 to reduce the negative impact of its activities in the environment. Additionally, the company is performing simulations of hydrocarbon spillage in Chatas, optimally segregating in store solid waste management and properly managing effluents coming from fish pumping water. Furthermore, the company has also switched to natural gas as a new fuel for two of its plants, Tambo de Mora and Callao. Exalmar also participates in community events, such as beach clean ups and community talks. [8]

While all of these actions are respectable and environmentally friendly, I cannot help but wonder if they are enough. Are these actions sufficient in limiting further sea level temperature increases? If they are not, is there anything the company could actually do or is the fishing industry in Peru doomed?

Looking forward, I believe that the company should continue with its current environmental conscious practices; however, in order to be a sustainable company in the medium to long term, it has to consider changing its business model. One way would be to adapt its plants to be able to use them to process other types of products. This would help monetize the unused capacity of the plants despite some initial investment. Another way that the business model could be altered would be to use fishing farms, as is already done with shrimp in certain countries. If done properly, this could be a way to ensure a certain production level. In my opinion, the only way for the industry not to be doomed is to adapt, continue focusing on environmental practices and considering more sustainable ways to approach the problem rather than just following the government’s imposed quotas.

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[1] Arias Schreiber, M.; Ñiquen, M.; Bouchon, M. Coping Strategies to Deal with Environmental Variability and Extreme Climatic Events in the Peruvian Anchovy Fishery. Sustainability. 2011

[2] Pesquera Exalmar Annual Report. 2015

[3] Laws, E. Edward A. Laws. El Niño and the Peruvian Anchovy Fishery. Oceanography Department, University of Hawaii, Honolulu. 2000

[4]Ñiquen, M.; Bouchon, M. Impact of El Niño events on pelagic fisheries in Peruvian waters. Deep Sea Research Part II. 2004

[5] Stenseth, N.; Mysterud, A.; Ottersen, G.; Lima, M. Ecological Effects of Climate Fluctuations. Science. 2002

[6] Pesquera Exalmar 7.375% Senior Notes due 2020 Offering Memorandum. 2013

[7] Standard & Poor’s Research Update. Pesquera Exalmar Downgraded To ‘B-‘ From ‘B’ On Weaker Credit Metrics; Outlook Negative. 2016

[8] Pesquera Exalmar Company Website (


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Student comments on Is the Peruvian Anchovy Industry doomed due to increasing sea surface temperatures?

  1. Thanks, Daniela. Does the weather volatility decrease the overall anchovy population or do they just move to other, more suitable climates? If it’s the latter, perhaps the company could follow the anchovies to their new locations. Obviously this is not ideal, but it seems that alternatives are quite few. I also wonder why Exalmar has not created fish farms to date – perhaps the cost is too high. Unfortunately, I don’t really see many options other than hoping for a more favorable climate moving forward.

    1. Thanks for the questions, Zach. Unfortunately, the anchovy population is dying rather than migrating to other more suitable climates. Warmer waters decrease the nutrients provided by the upswelling in the coast of Peru, harming the current population and decreasing reproduction as well. I also wonder why Exalmar hasn’t created fish farms yet. It could be because of costs or another more technical reason, but I agree with you that they really don’t have many options.

  2. I’m also curious how Exalmar accounts and plan for the possibility of a complete fishing season being lost. It seems like they would have to maintain large cash reserves or be able to take loans. I wonder if them being downgraded to B- is going to ultimately effect their liquidity and thus their viability. I also think Zach’s idea about fish farms is really interesting. Can anchovies be farmed?

    1. Thanks, Alan. The company is more reactive rather than proactive when it comes to fishing seasons being cancelled/lost. They try to maintain decent cash reserves and are confident with their ability to take out loans, but the reality is that they don’t have mechanisms in place to really cope with it. It becomes a vicious cycle, when a fishing season is lost like in 2014, their financial metrics are impacted and rating agencies downgrade them, further harming their financial metrics. I agree that fish farms could be an interesting idea. Currently there aren’t any anchovy farms that I know of, but I believe that it is an idea worth looking into.

  3. I really like your suggestion of finding new ways to utilize their plants, in the case that anchovy landings continue to decrease – I had the same thought as I was reading through the post. It would be interesting to see if there was some natural hedge they could focus on, as in a type of fish whose landings increase with warmer temperatures. I have literally no idea if such a fish exists in nature, but it’s an interesting FIN1 parallel of trying to diversify away the market risk of warming SST.

  4. Very interesting post indeed!

    To build on Mike’s point, I was wondering if they could hedge using weather derivatives in the financial markets (e.g. This could greatly decrease the downside in bad years, perhaps allowing them to escape the vicious cycle that you have mentioned.
    Other than that, I also like the idea of using their plants to other ends in a bad year and would suggest that they could use the plants in the same way they have been using, but taking imported fish as inputs.

  5. I find the article and the comments really interesting as they clearly define the fishing industry in Peru as a reactive more than a proactive industry. As it was clearly shown, all measures taken seek sustainability in the future but, in most part, do not address the fact that the change has already affected the industry and will probably do so in the future. I find Mike’s comments particularly interesting as it addresses the possibility of an opportunity from this situation. With this in consideration, I believe that research and development have to be a key part of the industry’s operation model, constantly trying to understand the effects of climate change on marine life and the possibilities the changes could entail for the fishing industries. Considering Peruvian anchovy is mainly used for the production of fish oil and fish flour, which is in turn used for agriculture, it would be interesting to study other species as a possible replacement or complement to anchovies.

  6. Thanks for the interesting post! I agree with a lot of the solutions that you proposed with regard to changing their operations to try to increase utilization in combination with actions to increase the sustainability of their operations to limit their contribution to climate change. Another issue that the company faces is the fact that enforcement of the anchovy quotas put in place by the government seems lax and there are many ways for companies to get around the regulations (see article here: If Pesquera Exalmer’s competitors are not abiding by these quotas, then all of the efforts of the company to try to protect the anchovy population will only lead to them to lose out to their competitors.

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