Russia working to maintain strong position on pollock market
It is possible to single out several events or trends that have a significant impact on the Russian pollock industry, according to Alexey Buglak, president of Pollock Catchers Association, interviewed by Fishnews.
The pandemic and its consequences are still in the first place. The coronavirus crisis of 2020-2021 continues to affect the financial and economic results of the industry. The pandemic caused not only a subsidence on the markets, but also led to a sharp increase in the costs of enterprises, primarily for logistics, freight and covid events. For example, in the first half of the year, the total cost of shipping products from fishing areas to Europe reached $ 1,000 per ton. Last year we estimated the losses of the pollock sector at $ 400 million, this year, of course, the loss of income will be smaller, but still part of the profit will be "eaten up". Plus, this year the situation was strongly influenced by another factor: fuel, which accounts for up to 30% of the production cost, has appreciated two-fold.
In addition, we see that, despite the stabilization of the epidemiological situation in the world, China continues to have a policy of "zero tolerance" for the coronavirus. This year, a series of "lockdowns" were recorded for unloading fish products in Chinese ports, and no revision of this strict regime is expected in the near future. This situation creates uncertainty for the fish processing sector in China, it is obvious that not all processors will survive this crisis. The migration of processing from China to other Southeast Asian countries — with cheaper labor — will accelerate.
The Russian fishery promptly responded to this trend. Over the past two or three years, the production focus has shifted to the production of value added products — fillets, minced meat and pollock surimi. They are delivered to end markets bypassing China. According to our estimates, by the end of the year, such production volume will approach 180-190 thousand tons. And for pollock fillets, we have every chance to overtake the Americans by the end of the year. We are already processing more than 40% of pollock catches into products with high added value.
The third block, of course, is related to the situation on the foreign markets. Here we need to pay attention to global macroeconomic trends. First of all, this is inflation in the food sector, caused by both rising prices for raw materials and energy, and the strengthening of the dollar against most currencies. The sharp rise in fish prices, which began this year, is highly likely to lead to overheating of the market, will lead to a slowdown in consumer demand and pressure on prices. For example, on the previously stable European market, individual producers have already raised selling prices for pollock sticks three times during the year.
According to Alexey Buglak, the Chinese market is showing some recovery, the import of frozen pollock is recovering, though it is still some 200 thousand tonnes lower than in 2019. How long this growth will last will depend on the price level of double frozen fillets in Europe and the USA.
Russian market share
Russia is the largest supplier of white fish to the world market with a share of about 35%, including pollock — 25%. By and large, there are two main producers of this fish in the world — Russia and the USA. The results of the pollock season in Alaska significantly lag behind the figures of last year: 1.19 million metric tons (-17%) were harvested. This is due to a sharp decline of the stock and a reduction in the total allowable catch. Surimi production decreased by 17%. Fillet production is still on a par with last year, but 30% lower than the "pre-pandemic" 2019. Similarly, the American export of pollock fillets shrank. At the same time, the supply of Alaskan products to the domestic market is growing: it is forced to pay more to compete with exports, and cheaper double frozen Chinese fillets have been pushed out of the market by protective measures.
At the same time, Russia has increased the production of pollock fillets by 30%, but taking into account the weak dynamics in the United States and the reduction in exports of fillets from China, we can talk about the loss of 80-90 thousand tonnes of fillets from the market. As a result, the price of it at the beginning and middle of the year reached a record level in the entire history of observations. But it is obvious that sharp price swings will inevitably lead to a consumption crisis. And signs of price cooling can already be seen, said Alexey Buglak.
In such circumstances, it is very important to assess the situation sensibly. It is possible and, of course, necessary to search for new markets, but it must be clearly understood that none of them is yet able to replace the European pollock fillet market worth 1.3–1.4 billion dollars. For many years, the industry of consumption and processing was formed there, including with the help of tariff and customs regulatory measures. In addition, this market is still the most solvent. Today, no other market is able to pay such money for pollock fillets as European or American (which has been closed to Russian products for a long time).
At the same time, it is important to note that, despite the absence of official bans, the situation with supplies to Europe remains very complicated and uncertain. We see that the pressure on Russian products on foreign markets is growing, there are calls for a boycott. Political risk has been digitized into a record price difference between Russian and American products on the European market. The largest buyers of Russian pollock publicly declare the search for alternative sources to reduce their risks. And the sharp increase in exports this year should not be misleading: buyers were forming stocks in case of supply halts, this is not a signal that everything is fine with exports.
Domestic market
According to Alexey Buglak, the Russian market is growing, but its capacity is limited. In recent years, domestic enterprises have increased the supply of pollock to the Russian Federation to record levels, ensuring the food security of our country. Last year we delivered 230 thousand tons of such products to the domestic market, this year, I think, the volume will be comparable. According to our estimates, the share of pollock in the average "fish" basket, if we use the Rosstat methodology, is 16% — this is quite a lot.
Therefore, if we talk about further increase, we need to understand how it can be achieved. This is, of course, the development of internal processing, and the release of consumer products, the development and launch of new products, for example, semi-finished products. But still, we cannot force the consumer to buy one pollock. People need diversity, there are certain features of consumer behavior, and it all needs to be taken into account and really look at things.
One more important point should be noted. Today, the price on the shelf remains the main limiting factor for consumption growth. While pollock "reaches" the end consumer, its price increases significantly, sometimes by multiples. Senators of the Russian Federation also spoke about this: in the regions, the retail cost of frozen pollock reaches 350-400 rubles per kilogram. This is despite the fact that a wholesale selling price from a coldstore in Vladivostok is 85-90 rubles, and during the year it has dropped to 70-75 rubles. This margin is not formed by fishermen, but it is a problem for the entire industry as a whole.
The current subsidy for the rail transportation of pollock in the amount of 6 rubles per kilogram did not have a significant impact on consumer prices, because it was actually "eaten up" by a twofold increase in the cost of transportation. The mechanism of this support measure needs to be refined, its recipient should be a product supplier, not a shipper, which is often a freight forwarder or carrier.