Bring in the old, throw out the new

People often quip that the Jesuits will make a child their man for life — if they start educating him early enough. The modern equivalent is probably Mcburgerbusiness Inc., working in the hope that once small children have tasted their sauces they are customers for life.

The radical shake-up of the Latvian fishing industry after the end of the USSR (see World Fishing Interview, July 2005) also affected the canning sector. But this was canning with a difference because sprat and herring from Riga have been going out across geographical Europe (from Reykjavik to Vladivostok) since the Middle Ages. Smoked salted and barrelled, they were the barter Euro of their era.

It was Riga which basically brought the world canned fish in the middle of the 19th century. When I caught up with Aivars in the company’s smartly renovated office he seemed a bit uncomfortable – in fact he was still aching from a weekend disagreement between his enduro motocross motorbike, an obstacle during a competition and his ribs and his arm muscles!

Russian bear

Latvia’s difficult political relations with Moscow are certainly important in the world of sprats. Most of the 250 million people who used to live under the Soviet umbrella have picked Riga Gold Sprats out of their trademark, round black tins. As a student at Moscow State University, I remember some times the only thing on the local state shop shelves seemed to be tinned fish!

World Fishing had heard there had been recent problems over Riga canned fish because of political differences with the Russians. The food federation had shown me charts with the market shooting up and down and big increases to countries like Germany. What had really happened? It soon became clear I had a lot to learn and Aivars began at the beginning.

He told me that in value terms the market was on the up but in terms of volume it was flat.

“For fish for most of Latvia we generally process sprats in oil and smoke sprats. this was the industry in Soviet times and even before, back in the 19th century. It’s very popular product in the Eastern [European] market. This is a national fish and that means it makes for jobs nationally– domestic employment. This is a specialised market.”

He said it helped to look at timber sales from Latvia. Most of them went to the UK. And if you looked at timber from Norway and Sweden, they also work for the UK market. But you can’t sell a single cubic metre to the Russians.

“But sprats — then the market is here, it is the eastern countries. It is the basic market.” Gamma was set up in the early 90s after the canning sector was rationalised and he said “Today I think we export to 28 countries, all 15 previous Soviet republics and also a little to bit Germany, the UK, Israel and the US.” The latter countries are niche markets where there are former Poles, Russians etc who want a taste from the past.

“Yes, we are selling to nationals who grew up tasting sprats. But if we talk about Russia, then it is a big market and in the future it will grow even more. We have good relationships with the business sector there and geographically we are close. Consumption in the Ukraine a is a little bit different [from Russia], and in Uzbekistan absolutely different.

“It could be a little bit different for the flavour and sometimes even the quality could be different. The Kazakhstan market asks ask for a cheaper product and not so good quality, so it has to be a cheaper one. In Russia you can offer better quality — the cost [he pointed out a tin] in the market for best [Riga Gold] is around 63 US cents ex-factory.

Part of the row with Russia was to do with 300,000 to 400,000 ethnic Russians who had settled in Latvia and were now told they had to apply for Latvian citizenship (and pass Latvian language exams, which the elderly could not or would not). The result today is that there are several hundred thousand Russian-speaking people in Latvia who do not have any citizenship, but have to rely on a kind of alien’s ID card. This was an important issue which the EU has said Latvia must resolve to meet its full EU duties in terms of human and citizen’s rights).

The inspector calls

“When we joined the EU [May 1 2004] then Russia said, ‘So, okay, if you are in Europe, you have to [make sure] all food and fish product factories must meet the EU regulations, and if you want to export to Russia you must meet all the Russian rule’.

“Of course there are no [transparent] rules about how they will inspect and how you will be approved or not be approved. You have a Russian commission, which goes around and looks at everything and after a few months makes a decision and you can’t understand about the decision and whether the [criteria] are good or bad. This Russian veterinary commission was much tougher than an EU one!” Aivars laughed.

The events went as follows- in Spring 2004, the Russians told the Latvians they would need Russian certification approval after September 2004 to keep selling to Russia.

I asked whether the inspectors were looking for payoffs – Russian corruption? Or Kremlin ‘corruption’, using rules to put political pressure on Latvia? He said no, not all. So I said what about them making money by charging inspection fees to the Latvian canners? “Yes, yes – but that’s okay – it [the fees charged] was a formality.

“The biggest problem was you did not know the rules they came in June and they finished up in July and then went back to Moscow and then we waited for answers… and we wait, and wait and wait and then the end of August, the last day, first of September they just gave information which companies were approved or not.”

This must have messed up their market?

“We tried to sell up to the first of September. In Latvia there are around maybe 20 canning factories, and we (Gamma) have three canneries and together they make us the biggest. There was an other problem — EU approval up to the first of January 2005. We had one factory in Riga which was EU-approved and another under construction waiting for approval. Then Russia said ‘only companies with EU approval’ or you do get an import license. “Only six or seven companies got through!

When Gamma was ready to put the new factory up for clearance the Russians …finally came in December and when they made the inspection we waited one month, like the previous time, and [we thought] after one month they would make a decision, and they said ‘No! we never promised to make a decision in one or two or three months…’

At least he was now able to laugh about it and today some 80 per cent of the companies have EU and Russian approval. But had it cost them heavily in time, market and sales?

Some companies filled the gaps in Russia left by those without licences. “We expected more trouble ourselves. Our products were everywhere in Russia and we were afraid we would lose the market very quickly. Because it [Russia]was maybe 40 per cent of our total volume and 60 per cent of our total value sales. We can manage with a smaller profit because we are able to sell more quality product.”

It all worked out in the end. “Our total turnover is about 20 million lats (ca. €30m) and the total value of exports by all [Latvian]companies in this market is about 80 million. He said that about 25 per cent was added to the raw material cost of the sprats and he was quite determined that they did not want to play around in the way the Danes had, with rollmop herrings coming in everything from sherry to curry sauce. They offer tomato and lemon sauce and this is basically it. In addition they do little bit of cod fillet, some mackerel and herring.

I tried to explain how other processors were trying to grow their range by diversifying through sauce ranges.

I had to understand, he said that “The lower-cost [canned sprat] product might be selling at around 40 cents in Moscow. There were also delivery, distribution and retailers margins”, all enough to cope with.

But what about the centuries old brand – they did not need advertising to put new lines into shops. They could maybe sell fresh sprat in season direct to restaurants and ship same day by air through the massively expanded Riga airport.

Old familiar

Our biggest problem is labour and costs going up. If you have a lot of manual work, because the sprats are put manually in the cans, it is a big problem. Then there is quality. The best is around April. You get quality in December but bad weather may mean you cannot catch fish the way you want.

He also said they were not interested in the fresh market because ‘it is a completely different market. Let’s say we have 10 wholesale customers in Moscow and we start offering them blocks of frozen fish — they will say ‘this is not our ‘business’ — to start with there is a storage issue. But probably the most sensitive thing is the distribution.

No he said, I should forget the planes, and the fresh sprat of the day, and marketing campaigns to fashionable restaurants.

“Our [aim] is just to sell more wagonloads of tins. There are no worries. We can just aim sell two or three or five more wagons of tins. It is ten times easier to send one extra wagon to Kazakhstan and get the same profit. Why fight here? It is not interesting for us.

So there it was, despite all the troubles, doing what you know best in the simplest way seems to be the moral of this story. But there is a twist in Aivar’s tale. At the end of our ding dong discussion on the philosophy of marketing he said they were up to something — but the only commonality was the tin can, which they also make and in which he is an expert because he studied canning and tool engineering as a student.

The content will be white button mushrooms….selling to the US, using Latvian and part of their existing factory facilities.

“In Europe — Holland, Germany, France and Ireland were doing mushrooms but it is going down and down and switching to Poland which is going up. We have very good relations with the biggest importer of mushrooms in the US. So we finally decided to do the mushrooms in parallel with the fish.” And that will also protect them against any future problems on fish.

Sprats are “The traditional product!’ said Aivars.

So perhaps the old saying is true ‘don’t put all your sprats in one basket, have mushrooms with your breakfast’!