Russian Aquaculture, back on track

Russian Aquaculture, back on track Russian Aquaculture has resumed its activities in northern waters

Russian fish farming company Russian Aquaculture is back on its feet after a series of devastating salmon louse outbreaks nearly wrecked its salmon business in 2015, reports Vladislav Vorotnikov.

The Karelia-based company saw its financial performance booming in the first half of the year as salmon facilities in the Barents Sea were finally brought back into operation. Russian Aquaculture boosted sales to 9600 tonnes in the first half of 2019, up from only 800 tonnes during the same period of the previous year. This secured a 16-fold hike in revenue, jumping to Rub4.9bn ($74 million), as well as boosting net profits to Rub1bn ($15 million).

Russian Aquaculture runs two different business sectors, with salmon and sea trout farming in the Barents Sea in Russia’s Murmansk region, and the commercial farming of trout and production of red caviar in the lakes of the Republic of Karelia. It had been reported that the company owned salmon and trout cultivation rights for 30 sites with a potential production volume of 50,000 tonnes, but a few years ago had to adjust its expansion plans due to what can be described as “a series of unfortunate events.”

The 2015 the company was hit by a perfect storm. First fire destroyed a Russian Aquaculture fish processing plant in northern Russia, with a loss of RUB1.5 billion (US$27 million) in investment. A further Rub327 million ($5.5 million) of direct losses were suffered as the company lost nearly 1 million salmon units due to the salmon louse outbreaks.

Prior to 2015, Russian Aquaculture was also engaged in importing and distributing of Norwegian salmon in Russia. However, the food embargo introduced by the Russian federal government in August 2014 barred access to the market for all food products from the European Union, and so this part of business was adversely affected – although not lost completely, as Russian Aquaculture shifted to importing fish from some Asian countries and Faroe Islands.

Taking all this into account, it’s no surprise that Russian Aquaculture suffered a net loss of Rub325 million ($5.5 million) in the first half of 2015 – probably the darkest hour for the company. In 2016, Russian Aquaculture saw its first profit in three years, and in December 2017, it went on an SPO on the Moscow Stock Exchange, floating 8.33 million new shares at Rub 120 ($1.9) each.

This helped the company to attract about Rub 1.6bn ($25 million) in order to support further investment. However, this was significantly lower than had been initially expected.

A way on top

In a view of the outbreak and due to the need to take some drastic action, Russian Aquaculture took the tough decision to not populate its cages with fish in 2016, but to focus on internal efficiency and to streamline the supply chain instead, according to Ilya Sosnov, general director of Russian Aquaculture. Special attention has been paid to protect salmon from lice, which, he commented is still “a number one challenge” for Russian aquaculture producers.

Over the last three years, Russian Aquaculture invested Rub500 million ($8 million) in enhancing protection at its salmon farms, and yet it would be wrong to say that the company is fully protected against lice, Ilya Sosnov admitted.

Russian Aquaculture filled its cages in Murmansk region with salmon in 2017, allowing the company to begin its first harvest for several years in August 2018. This extended over eleven months and with three generations of fish on its farms today, the company is again able to be optimistic.

In 2017, Russian Aquaculture purchased Olden Oppdrettsanlegg AS and Villa Smolt, both are smolt production facilities in Norway. The main purpose of those deals was “to cut both operating costs and biological risks,” Ilya Sosnov commented.

Olden Oppdrettsanlegg AS is able to manufacture 2 million smolts annually, while Villa Smolt produces 5 million smolt every year. Russian Aquaculture has a long history of importing salmon smolt from Norway, as in 2016 the company imported 4 million Norwegian salmon smolts. However, the company’s long-term development strategy set out plans for the company to become self-sufficient in smolt production.

Prior to the crisis, Russian Aquaculture had announced plans to build one more smolt facility in Russia with a planned annual production capacity of 12 million smolts, plus a large-scale feed production site with a production capacity of around 80,000 tonnes per year. The overall investment value of these ventures were estimated at Rub 13bn ($200 million) – but the series of setbacks the company experienced meant that ambitious plans had to be shelved.

This year Russian Aquaculture plans to produce up to 20,000 tonnes of salmon while a stable cash flow has enabled the company to invest into expanding its capacity to reach a 30,000–35,000 tonne annual production by 2025, Ilya Sosnov stated this summer.

Fishy business

To achieve this expansion strategy Russian Aquaculture needs more broodstock. As of today, the company spends Rub700 million ($10.5 million) every year to import smolts from Europe, and Ilya Sosnov said that the anticipated increase in production could push this figure up to Rub2 bn ($31 million).

In order to become self-sufficient in smolt production, Russian Aquaculture plans to invest Rub 3.5bn ($52 million) in the next few years, starting with a Rub2.5 billion ($41 million) investment in a new smolt facility in Murmansk Oblast capable of producing 5 million smolts every year. The Norwegian-based AKVA Group has been chosen as a technology supplier for the project – although contracts are yet to be signed.

In addition, Russian Aquaculture plans to invest Rub900 million ($13 million) into modernising Villa Smolt in Norway. This project should provide the company with several million salmon smolts per year. Altogether, the company needs 12 million broodstock units for its salmon business to become fully self-sufficient.

In a statement in 2017 Russian Aquaculture reported that it was purchasing smolt plants in Norway  parrtly to get access to advanced technologies needed to build its own plant in Russia. Importing salmon smolt from Norway is still believed to be an issue, since all import supplies are subjected to an import duty in Russia.

Overall sales on the Russian salmon market were estimated at Rub 50bn ($800 million) in 2018. The growth of this market is still gaining momentum, Ilya Sosnov said, adding that the company expects demand to grow in the coming years.

The average price for salmon in Moscow starts from Rub570 ($9) per kg, while salmon ​fillet fetches around Rub1350 ($20) per kg.

Over the past twelve months, the average salmon price in Russia jumped by 100%, commented Alexander Saveliev, chairman of the Russian Fisheries Information Agency. In the coming months, the average price could rise another 25% to 30%, he added. There is a clear shortage of fish in Russia, since imports from the European Union remain blocked and there are logistics issues to delivering fish from the Russian Far East to the European part of the country.


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