Russia in transition; why any future trade with the Russian ​Federation will be on very different terms to those of the past

Russia in transition Sorting pelagic fish

The trade embargo that was introduced by Russia in response to economic sanctions against Moscow over the Ukrainian conflict is now into its fourth year after being extended twice. The ban has disrupted markets all over the world, with seafood supply chains particularly affected as producers and exporters sought alternative markets for the fish that continued to be caught and harvested, reports Jason Holland

Iceland ranks among the exporting nations most affected by Russia’s import ban as the market provided the second most important destination for its seafood behind the UK, acknowledges Jens Garðar Helgason, chairman of Fisheries Iceland.

“With Iceland exporting around 95% of its seafood, it is crucial for us to have open markets in as many countries as we can,” he told delegates at Seafood Expo North America (SENA) 2018 in Boston. “But in more or less one day we lost 75 years of trade relationships. It has had a huge impact on our industry, affecting all kinds of businesses all around our coast.”

From a Russian perspective, the ban’s implementation has seen its seafood imports fall by 36%, from 703,000 tonnes in 2014 to 450,000 tonnes last year, with the three categories of pelagics, salmonids and whitefish (mainly surimi) suffering the most, said Andrey Buzin, sales and business unit director at the Russian Fishery Company.

Consequently, the domestic catch of species such as herring, cod and mackerel have increased, reaching 503,000 tonnes, 501,000 tonnes and 305,000 tonnes respectively in 2017. At the same time, Chile and the Faroe Islands have replaced Norwegian and EU producers as Russia’s main salmonid and herring suppliers.

However, with the price of seafood products going up by an average 23% since the ban, there has also been increased substitution of fish for other proteins, with pork and poultry being the big winners. Production in these two sectors have grown by 20% and 21% respectively.

Neighbouring Belarus has also benefited from the embargo, becoming the biggest importer of seafood products to Russia, including salmon, Andrey Buzin said. It was also the second largest destination for Norwegian fish last year and has become a major seller to European markets too.

“This situation will continue for quite a long time with one of the results of the ban being the proper development of the Belarus processing industry. It now has a well-qualified workforce and up-to-date factories, so there will be no need to drop them when the ban is lifted, which I hope will happen someday.

“The ban also gave a big boost to aquaculture development. Unfortunately for our country, there are not many areas where salmon aquaculture is possible but total production has moved up dramatically and the increase will continue because before the ban this industry did not really exist.”

While the sanctions have made life difficult for many seafood consumers in Russia, particularly the reduced availability and bigger price tags placed on the popular imported fish, he said that among the positive outcomes there have been switches to alternative and local species and more jobs created in the production sector.

“There were some problems but the impacts for fish and agriculture industry in general were not so bad. The most important question is what’s next? We don’t know how long the sanctions will last for; they are all for political gain and have nothing to do with economics.

“That’s why when we develop our industry projects, we do it for the long-term. We have built strong supply ties with Belarus and Asian countries and those ties would be difficult to cut if and when the ban is lifted. We also believe that the Russian economy will become further distanced from international processes.”

Using the pelagic supply chain to illustrate the overriding trends in the Russian market, Simon Rilatt, procurement director at Espersen, says he believes the reduced demand caused by the lack of supply and rising consumer prices have contributed to an underlying change in core demand, which may have longer term implications.

“Should the sanctions be lifted, the market may not instantly react to better availability.”

Simon Rilatt also highlighted that Russia’s groundfish capability is improving all the time and that higher quality products are increasingly being made available to the local market that are capable of meeting its premium needs.

Inevitably, this “raising of the bar” will filter down through all product standards, making Russian consumers more attracted to domestic foods and thereby raise fish consumption in the country, he says.

“The reality is that the market always responds. So whatever the future holds, it’s almost certain that it won’t be the same as the past.”

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