Russia’s seafood industry tightens its belt

While the entire Russian economy is generally not faring well this year, with estimates made by the Russian state statistical service Rosstat finding the net profit of firms decreased by an average 1.8% in the first six months, the seafood industry ranks among the worst financial performers. Indeed, fishing industry union VARPE has calculated that nearly every second Russian fishing company was loss-making in the period.

This downturn is nothing new. It’s reckoned its financial health has been steadily deteriorating at least since 2022, and last year’s net profit fell by 15% to RUB 102.2 billion ($1.1 billion).

A key factor impacting profitability is a hike in the Central Bank’s key interest rate, says the Russian Association of Fishing Fleet Shipowners. The organisation noted that in a bid to tame inflation, the Russian Central Bank jacked up the key interest rate in several rounds to 19% as of early October 2024. In 2021, it was as low as 4.25%.

The high interest rate makes commercial loans for much more expensive, the association explained. For the Russian fishing sector, the cost of loans is particularly important since the largest players have no choice but to invest in new fleets and processing infrastructure to honour their obligations taken under the government-run investment quotas programme.

When this programme kicked off in 2017, Russian fishing companies pledged to build new vessels at domestic shipyards and fish-processing infrastructure in key fishing regions in exchange for fishing quotas.

Now though, there’s evidence the government has been stepping in in to alleviate the financial predicament, and Irina Zhvachkina, Deputy Director of Rosselhozbank, the leading agricultural bank in Russia, confirmed that of the RUB 24 billion ($280 million) of commercial loans taken by the Russian fish industry in the first-half of 2024, nearly half were loans with state-subsidised interest rates. The other half, however, were taken with interest rates of around 22% to 25%, which is far above the industry’s profitability.

Nevertheless, the industry’s investment potential is estimated at RUB 600 billion ($6.5 billion) through 2030, Zhvachkina said.

Labour crisis

Meanwhile, most companies in the sector are suffering from an unprecedented labour shortage. Consequently, since 2019, the average monthly wage in the fishing sector has risen by 62.5% to RUB 163,000 ($1,800). VARPE President Herman Zverev noted this is more than twice the average monthly salary in Russia, but fish companies have no choice but to lure more workers with bigger paycheques.

Overall, Russia lacks around 5 million workers, the Economy Institute under the Russian Academy of Science said in a December 2023 study. The crisis is attributed to a mix of factors, including massive emigration, weak demography and ongoing draft into the ranks of the Russian army of volunteers to fight in Ukraine.

All segments of the Russian fishing industry complain about falling profitability. For example, the Russian pollock industry enjoyed a 44% rise in catches last year, making the country the world’s largest pollock manufacturer, according to Alexey Buglak, President of the Russian Union of Pollock Catchers. And yet, management costs, which include wages, have jumped by 91% since 2019, driving the cost of pollock production up by 55%.

As a result, the average profitability of the Russian pollock industry has nearly halved in the last five years, Buglak noted.

“The labour crisis is growing more pressing,” a fishing industry source told WF. “There is a long-standing issue, as in the last decade, where the number of young people opting to become seafarers in Russia has dropped dramatically, and now companies are struggling to hire the most experienced staff with higher payments and various bonuses.”

It’s now commonplace for every fishing vessel to have a core team and “temporary employees” who roam from one ship to another, seeking better working conditions. Their share ranges between 15% and 40% of the staff, and recently, the struggle for this category of workers has become particularly fierce.

The salary race is likely to continue for the time being, until the companies run out of resource to raise wages, WF was told.

Aquaculture potential

While Russian fish farmers are suffering from the same economic issues, government analysts believe they’re doing better than the fishing industry.

“This direction’s profitability is consistently high. It can reach 45% to 50%,” Rosselhozbank’s Zhvachkina said, adding that in the next 3 to 5 years, Russian aquaculture is expected to attract investments between RUB 70 and 100 billion ($800 million to $1.1 billion).

In general, aquaculture is “a zone of growth and investment potential” in the Russian fish industry, the analyst added.

Russian aquaculture’s output has steadily risen in recent years, though at a relatively moderate pace. In 2023, Rosstat calculated it climbed by 4.8% to 402,000 tonnes. By 2030, the Russian government expects the figure to have risen to 600,000 tonnes.

However, fish farmers remain sceptical about the growth rate, as launching a fish farm is no cheap or easy undertaking. Over the past two years, the price of equipment and building materials for a fish farm construction in Russia has increased by 30-45%, Agriconsult, a Moscow-based think tank, recently calculated.

“It is tough to compare the current cost of implementing fish farming projects more accurately with what it was, for example, a year earlier; the construction of aquaculture production facilities is a long process,” Agriconsult General Director Oleg Golokhvastov said. “Even the implementation of a small project with a capacity of tens or hundreds of tonnes of fish usually stretches from several months to a year, and medium and large ones – from several thousand tonnes of products, for several years.”

Meanwhile, seafood consumption is waning. Russian consultancy Business Stat recently calculated that since 2021, sales of fish products across the country have fallen from 3.7 million tonnes to 3.4 million tonnes.

Trade barriers

The international political situation also remains challenging for the Russian fish industry. Since 2023, Russian fish exports have been subject to a floating import duty ranging between 3% and 7%, which is tied to the Russian Ruble’s exchange rate. This duty was implemented to fill the strained Russian federal budget, but it has also deprived the industry of some export revenues.

There are also fears about new Western sanctions. The US ban on Russian crab imports has dealt a tough blow to crab-catching companies, but this would pale when compared with a potential EU ban on the Russian pollock, discussed by European policymakers during the last several months. If applied, the move will trigger a turbulence on the global pollock market.

But even in the absence of new shocks, a further decline in the industry’s average profitability is widely expected in 2025.