China’s import ban could leave millions of tonnes of Russian fish unsold and result in thousands of job losses, as it seems that Russia is running out of options to avoid the worst case scenario becoming a reality, reports Vladislav Vorotnikov
The Russian fishing industry is on the verge of what is already being described as the worst storm it has faced. The Chinese import ban introduced in late December of 2020 came as a shock, as China had up to now imported roughly 70% of Russian Far East catches.
In Russia’s Far East, the fishing year begins with the pollock season. By late January this year, Russian fishing companies had caught 145,000 tonnes of pollock, 19% down compared to the same period of the previous year, as some companies decided to tie up some of their capacity.
In addition, the wholesale price of pollock in the Russian market slumped to the historically low levels. By early February, pollock prices in the Far East had dropped to Rub65 ($0.80) per kg a 36% reduction compared to the same period of the previous year, according to estimates by the Federal Agency for Fisheries. The picture is similar in European Russia, where the prices have nearly halved.
“Contracts between fishing companies and processing companies have been concluded at the price of Rub65 per kg, which is the historic minimum,” commented Alexander Panin, chairman of the Russian Fisheries Union.
“If this issue is not resolved fast, preferably shortly after the end of the Chinese New Year holidays, the price is likely to dive deeper to Rub40 per kg ($0.55),” he said, commenting that those fishing companies fortunate enough to find available processing capacity would have no option but to sell fish at this price.
He added that local traders who purchased pollock at the Rub65 per kg price are taking huge risks, since with no rapid progress on the Chinese import ban issue, they stand to suffer tremendous losses.
The Russian fishing sector sees the Rub65 per kg price as a breakeven point for most companies. If the price slumps to Rub40 per kg, the entire Russian fishing industry will incur heavy losses. Against this background, the catching sector is calling on the government to embark on unprecedented measures to save the industry from what could easily become a wave of bankruptcies.
The Russian industry union VARPE has called on the government to purchase pollock from fishing operators at a guaranteed price so as to supply schools, kindergartens and other institutions. The proposal has been supported by several big fishing companies, including Dobroflot and Norebo. The Far Eastern industry estimated that to purchase 700,000 tonnes of pollock, the government would need to spend Rub50.40 billion ($800 million).
In addition, the logistics costs for delivering such quantities from the Far East to European Russia would be tremendous, plus there would be handing challenges. As of early February, 1000 containers were available on the Far East, enough to support traffic of 300,000 tonnes of pollock over the coming months. However, the Union of Fish Industrialists of the North issued a statement stressing that the facilities in the northern region are not suitable for Far Eastern pollock.
Historic turn of the tides
The trade dispute is likely to have far-reaching consequences. For decades, Russia has relied on China for processing capacity, but the recent trade dispute is expected to end this. In few weeks, Russian government officials have been sending clear signals that no matter how and when the dispute is resolved, Russia is putting effort into becoming self-sufficient in fish processing capacity.
In the coming weeks, the Russian government is launching a set of supportive measures aimed at supporting companies planning to establish fish processing capacities, said Yuri Trutnev, the Russian president’s representative in the Far Eastern federal district.
“We will implement a small programme, [involving] a number of support mechanisms so that people can establish fish processing plants as fast as possible, so that in one and a half – two years maximum – we could add enough fish processing plants to close the gap,” he said, adding that some fish processing plants in Russia are already being built, including some under the investment quotas programme. One way or another, Russia will no longer export raw fish, he announced.
“The Russian government has a clear position – our resources needed to be processed in our own territory. We must create jobs for our own economy, not for others,” he stated.
However, the government’s plans seem optimistic. It could take at least five years to establish a comprehensive fish processing industry in the Russian Far East capable of handling its catches, estimated VARPE president Herman Zverev. He commented that this would require not only building fish processing plants but also establishing cold story capacity and port infrastructure.
All the same, regional authorities have expressed their confidence that the challenges can be resolved much faster.
“The Russian government will put together a set of support measures within a week, which would lay the basis for creating sufficient fish processing capacities in the Far East in the next one and half to two years to move away from dependence on China,” the Primorsk government announced in a statement.
“The region is doing a lot of work in this direction with two large factories for processing pollock and other fish species that have been built in Bolshoy Kamen and Nadezhdinsky District, and processor trawlers for the coastal fishing fleet have been laid down at Russian shipyards,” the Primorsk government stated.
Russian businesses, however, appear reluctant to pump money into new projects. An industry source explained that the government’s stance has yet to be seen, and investors are afraid that they could lose their money if China were to re-open its market as it was before the import ban.
“Fish processing in China is more competitive pricewise, which is why there have been so many years of unprocessed fish being exported. Some real incentives must be given to the domestic industry to change that, and it would require not only money but also political will,” the source said.
Temporary solutions needed
But the Russian fishing industry needs first to survive the current criss. Among other threats, the Chinese import ban could leave Russian companies without fishing quotas.
“There is another issue, which is not so pressing yet, but we will have to deal with it ,” said Georgy Martynov, president of the Primorye fishermen’s association. “If fishing companies do not utilise their quotas to the required level, which is 70% per year for two years in a row, then they may lose those quotas. And now we face a situation in which fishing companies have reduced their catches due to the lack of available storage and processing capacities.”
The prospects of resolving the import issues remain vague, prompting Russian fishing operators to look for new markets, making trial export deliveries to South-East Asia, Africa, and even South America.
“China is coming up with new demands – a coronavirus test, more coronavirus tests for the crew, certificates, a coronavirus test for packaging and products. Recently, a shipment of iwashi went to Africa, but this is a one-time deal. We are looking for other markets, but no one buys as much as China,” one industry source said.
During recent weeks, the price per container of freight quadrupled from $100 to $400 per tonne. Waiting for export restrictions to be removed, Russian fishing companies are leasing ships with refrigeration capacity to store their catches, and according to Alexey Sobolev, general director of transport company Kamchatka Lines, reefers are being turned into “floating cold stores”.
By taking this option Russian companies incur heavy costs, and this situation can only last for solong. In this context, new export markets could be the only one reasonable solution.
Alexey Buglak, president of the Russian Pollock Catchers Association, has called the government to negotiate with Thailand and Vietnam to facilitate pollock export in these directions. All the same, most fishing companies in Russia are not confident that the issue can be solved quickly enough.
Some Russian analysts have called on the government to support fish transport using the Northern Sea Route. This could cut logistics costs low enough to make it worthwhile supplying pollock to European customers. However, the Northern Sea Route, most of which is through Arctic waters, is a controversial project, with risks and costs that aren’t easily evaluated.
Although it seems there are plenty of options, there are no good ones. It is likely the only thing the fishing sector could truly hope for is an end to the Chinese import ban. Otherwise, 2021 could become the Russian fishing industry’s toughest in recent times.