Russian seafood industry at crossroads as big business seeks to control market
Russia’s seafood industry is at a crossroads as big companies start investing more money and asking for more quotas from the country’s government, while small businesses oppose big changes in the configuration of quotas and the market.
The Russian seafood industry has had a complicated history and faced a rapid deterioration in its fishing and processing capacities in the early 2010s. The economic crisis of the 1990s and the lack of a seafood policy Stable state meant that most companies did not have the funds to modernize.
In 2014, the need for more modern fleets and factories became more urgent when Russia imposed a ban on seafood imports from the European Union, the United States, Canada, the Australia and Norway. At the same time, the country expelled foreign companies from Russian waters by limiting the share of Russian fishing stocks.
By ousting foreign seafood from markets and foreign companies from Russian waters, the government has created more favorable conditions for domestic players. With strong demand for Russian seafood products abroad and stable demand domestically, companies had promising market forces in their favor.
In 2015, Russian President Vladimir Putin endorsed the idea of allocating quotas for sought-after species to fisheries ready to invest in new fleets or factories. The first investment quota program was launched in 2017, a second should follow in 2022.
Favorable market conditions, coupled with the investment quota program, created incentives for investors. PortNews Director of Development Nadezhda Malysheva told SeafoodSource that the industry is likely to see an increase in M&A activity.
“The Russian seafood industry is becoming more and more attractive to investors. The growth in global demand for seafood is lagging behind supply, while Russian fisheries with a stable catch of 5 million metric tonnes (MT) per year have a lot to offer, ”he said. she declared. “Businesses outside the industry will come and businesses inside the industry will continue to buy from their competitors.”
Some investors are believed to be behind the proposed changes in the industry – changes in favor of entities with the money to take advantage of it. The first case arose in 2017 when a “group of investors”, whose identity is unknown, approached Putin with a proposal to create a government auction for crab quotas that were previously distributed on a catch principle. prior.
The proposal sparked outrage in the industry, with rumors that investors pushing for the auction were the owners of the Russian Fishery Company – rumors the company denied. In the end, the government came to a compromise to sell only half of the quota – a move that resulted in the emergence of a new “crab king” as some companies won big.
Regardless of the impetus given to the original idea of quota auctions, RFC owner Gleb Frank went on to come up with a new vision of how to reform the seafood industry and promote a more active renovation of the seafood industry. the country’s fishing fleets. He proposed the redistribution of allowances to investors willing to pay them through auctions similar to crab auctions.
Frank, the son-in-law of Russian business tycoon Gennady Timchenko – who is said to be close to the Kremlin – would have access to enough money for such investments and, therefore, more quotas. His bold ideas, opponents replied, would create unequal competition.
Following Frank’s proposals, the Pollock Catchers Association (PCA) attempted to oust the companies from the RFC and thereby deprive the fishery of a Marine Stewardship Council (MSC) certificate. The RFC said it would seek its own MSC certificate, but quickly regained its certification and PCA membership.
In 2021, the Fishery Fleet Owners Association also began researching proposals similar to Frank’s, asking the government to hand out more allowances to companies willing to make big investments in the sector. In a letter that association president Alexey Osintsev sent to Russian Deputy Prime Minister Viktoria Abramchenko in October, the association proposed measures similar to those taken by the RFC regarding investment quotas for ships and vessels. processing plants built under the program.
In December, Osintev sent a letter to Russian Agriculture Minister Dmitry Patrushev saying quota auctions should be extended for Far Eastern shrimp, a high-value species. He also proposed a limit on the lifespan of fishing boats, an idea previously voiced by Frank. The Fishery Fleet Owners Association is largely made up of companies affiliated in one way or another with the RFC.
Frank’s proposals were backed by a new ally in late 2021, as Vitaly Orlov, owner of Norebo, one of Russia’s largest fishing companies, pitched his own ideas for transforming the fruit industry from Wed Orlov sent a letter to Abramchenko with several drastic proposals, including the allocation of investment quotas for new vessels only and limitation of the life of fishing vessels from 15 to 35 years depending on the tonnage with the obligation to replace a vessel within 10 years of it. reaches its age limit. Orlov also proposed that the government impose higher taxes on the production of low-value-added seafood products to incentivize companies to manufacture higher-value-added seafood.
Even though Orlov suggested that action be taken from January 1, 2033, it sparked outrage across the industry – repeating the backlash to the RFC’s proposals. Events that followed almost mirrored what had happened to the RFC, with industry trade organizations erupting in angry comments accusing Norebo of trying to monopolize the market.
“Norebo’s proposals are not aimed at the development of the industry, but at increased monopolization by big companies,” Andrey Zaika, president of the Arkhangelsk Region Fisheries Union, told the news agency Russian Regnum. “Norebo is a powerful company, its managers are well aware of the consequences of their proposals. They want small and medium-sized businesses to leave the market.
On November 30, the board of directors of the All-Russian Fishing Industry Association (VARPE), the most influential trade organization in the Russian seafood industry, decided to exclude all affiliated companies in Norebo. In an official statement, VARPE said Norebo’s proposals aim to create favorable conditions for a limited number of large companies and will harm the interests of other companies.
On December 1, Norebo claimed on its website that the company’s subsidiaries would voluntarily leave the organization. Days later, Norebo announced that she would seek MSC certification herself, although there has been no decision to oust her from PCA.
The RFC supported Orlov’s ideas, the Kommersant business newspaper reported. Some pundits have even speculated that Norebo might join the Fishery Fleet Owners Association, as the company and the trade organization have almost the same goals. However, Norebo denied the speculation, with Norebo deputy CEO Sergey Sennikov telling Kommersant that the company was well known in the market and able to contact decision makers directly.
Pressure from big business has further split Russia’s fishing industry into two factions – big business versus everyone else.
The change was not quite sudden. In 2019, Orlov told Kommersant he expected more M&A activity in the industry, because “there will always be room for consolidation.” Norebo itself was active with new acquisitions in 2021. Other companies like Gidrostroy and Nadhodka Active Marine Base have also done big deals.
“The consolidation will lead to more funds available for much needed refurbishment in the industry, so investment in new ship and factory equipment will increase in the years to come,” Malysheva said. “The industry is likely to become more financially transparent as some fisheries may make an initial public offering.”
Foreign investment has also increased in industry. Vladimir Yevtushenkov, owner of investment firm AFK Systema, bought a 49% stake in Zarya, a Kamchatka-based company involved in Russia’s salmon fishing industry. A few months later, the business newspaper Vedomosti reported, citing anonymous sources, that it was in talks to buy a stake in Vityaz-Avto, another seafood company. Sergey Kopytov, AFK spokesperson Systema said the company is exploring various ways to invest, but did not deny the negotiations.
Vityaz-Avto is one of the largest fishing companies in the Russian Far East, fishing a variety of species including pollock, humpback salmon, and sockeye salmon. In 2018, the company completed a new processing plant, built under the first investment quota program. Vityaz-Avto’s net profit in 2020 was 1.08 billion rubles (14.55 million USD, 12.88 million EUR).
The launch of the new investment quota program in 2022 is likely to accelerate trends and consolidation as more investors seek more assets and allowances through purchasing power.
Photo courtesy of the Russian Fishery Company