Russian harvester combined market and deepwater crab stocks into goldmine. Full story.
Vladivostok-based fishing co-op RK Vostok-1 has discovered a new goldmine by combining the market development and the stocks of deepwater crabs which have remained underexploited both in the Russian waters and in the international waters. In other words, the co-op has reported a success both with the fishery results and with sales of the product on the US market.
In particular, in 2006 the company achieved highest prices of all the crab sizes and in early 2007 it was able to set fixed prices at the highest market level. As a result of fixing the prices, the co-op received orders exceeding its fishing capacity and it even had to put them off till 2008.
Taking into account the above situation, Vostok-1 is now in search of partners for operation in the international waters on the grounds of deepwater crabs as well as a range of valuable and abundant finfish species, according to Chairman of the company's Board of Directors Valery Shegnagaeyv as quoted by Fishnews.
Due to heavy costs the fishery of deepwater crabs has been ceased practically by all the companies of the Russian Far East, therefore now the co-op has remained the single supplier onto the US market with a good deal of freedom to make the marketing policy.
Originally the small-sized crab would make a problem for the company, but its engineers have done a good job to meet the challenge. They have found out that on the deepsea grounds the dominating crab sizes are normally small and such sizes are not strongly demanded on the US market. That is why the co-op has decided to follow the Chinese example and to process crab into meat products just like the case with swimming crab.
There are several groups of crabs divided by weight: frozen sections smaller than 3 ounces, 3/5 ounces, 5/8 ounces, 8/10 ounces and more than 10 ounces (one ounce equals 28 grams). Each group is differently priced. The difference between the prices of the sizes less than 3 ounces and 5/8 ounces is nearly twofold. At the same time, the yield of meat from one kilo of frozen sections is approximately the same at 40%. The thing is that small-sized crabs have thinner shell than large-sized crab. This is the discovery that has been made by Vostok's engineers. They have concluded that processing of frozen crabs into meat products can enable the producer to increase prices of small-sized crab to the level of large-sized crabs. In other words, opposite to previously difficult sales of small sizes at low prices, the new method is expected to help rise the efficiency of crab production nearly by 30-40%.
Good marketing both of crabs and finfish species has enabled the company to look into its potential operations in the international waters. The co-op's engineers have been to China and demonstrated the possibilities of deepwater crabs processing in order to achieve equal prices of meat extracted from large and small crabs.
Vostok-1 has already developed the concept of its future operations on the international grounds. The concept provides for the vessel's practically unlimited operations on the deepwater crab grounds with the catch rates per day expected at ca.10 tonnes. The expected crab concentrations should make it possible to profitably operate with two or three lines instead of typically 5 lines per day which is to result into large savings of fuel. Thanks to no resource fees on deepwater crabs, the vessel's total expenses can be decreased nearly by 50%. The saved money will be invested into development (shipbuilding) and increase of crewmen's wages.
The co-op's specialists have also worked out the methods of fishing and processing of some valuable and comparably cheap, but abundant species. Valuable species are deepwater halibuts, black cod, ocean perch, dory, purplehead and seabass and the catch rates of those species are expected at 10-15 tonnes per day. Comparably cheap fish such as grenadier can be harvested at the rates of ca.30 tonnes per day.
The fishing areas have remained undisclosed as the preparation work has taken much time and money, but the co-op says it will give the info to its partners free of charge and to other interested firms at prices to be agreed. Product sales will be carried out via the co-op's agent Global Seafood Corporation not to bring down the market. As it is fairly unreasonable to send one single vessel to work on the open grounds, there is a need to send a small group of 5-7 vessels in order to make their operations mutually beneficial. Participation in the expedition would be on a paid basis.
Meanwhile, the co-op says that the project has already received the backing of Deputy Minister Vladimir Izmailov from Russia's Ministry of Agriculture, Chairman of Agrarian Committee of the State Duma Mr. Gennady Kulik and Yuri Kokorev from VARPE Association of Fishermen, Processors and Exporters.
It is known that deepwater crab is the most abundant species, especially triangle tanner crab Chionoecetes angulatus and red snow crab Chionoecetes japonicus. In particular, Japan and South Korea have been successfully harvesting the species for seventy years already.
China is a continental country with comparably small adjacent waters and it annually harvests 556,000 tonnes of crabs with the volume exceeding catches of all the countries targeting crabs. The bulk of the crab harvest is contributed by swimming crab which is equal in terms of market value to deepwater crab. The Chinese fleets have avoided possible problems with sales of small sizes by means of extracting crab meat for further export to the USA and Japan. The country's crab sales to the USA amount to 11,000 tonnes per year.
The co-op's fleets know where to harvest deepwater crab in the open waters at the depths of 800-1400 meters. In order to get practiced in harvesting the species, in 2001 the co-op outfitted and sent one vessel for the operations on the grounds. In 2002 the co-op's all the three processing crabbers switched to crab fishery and some time later the co-op refitted another three crabbers and one mothership. By present the co-op has got a seven-year experience of deepwater crab fishery, namely of the fishery methods, tactics and strategy proven on the markets of the USA, Taiwan and Hong Kong.
The same situation has been reported for the deepsea fishery of finfish species. Vostok-1 has got a five-year experience in harvesting grenadier which has been appreciating on the market and is forecasted to grow into a substitute or addition to popular Alaska pollock soon.
The total expenses for the fishing operations are estimated at approximately 10 million USD, because the co-op has paid for some experiments and market analysis when starting the activity.
The cost of introduction of deepwater crab onto the US market is estimated by the co-op's debts made in 2004-2005. As per early 2006, the debts amounted to 18 million USD including 11 million USD owed to large suppliers and 7 million to creditors.
The reasons behind the debts are attributed mostly to the costs of market development, introduction of resource fees and a rise of fuel prices in 2005. In the year 2006 the co-op repaid 8 million USD. By now the co-op has 10 million USD to be still repaid and there are indications that in the current year 2007 the co-op will pay down another 8 million USD. In other words, the firm hopes that in 2008 they will operate without debts just like before they went heavily for the deepwater crab fishery.
In the open waters some 30-40% of fishing time is inevitably lost, the co-op says. Therefore Vostok-1 has decided to build a vessel which could work under all possible weather conditions. Such proposal has been made by the Norwegian builders who constructed a longliner for Vostok-1 in 1996.
Then the Norwegians built the first lead ship of that type. Now there are three such Norway-built vessels successfully operating in the open waters of the Antarctic and Vostok-1 has also decided to order such vessel.
According to Valery Shegnagaeyv, vessels of the above type have no drawbacks except for their high price. However, this drawback can be paid back as such vessels can fish in any weather thanks to the moon pool structure making a lake of placid water in the vessel's bottom against stormy sea overboard.
In 2004, when the co-op had got experienced in deepwater fishing operations, it ordered a similar design with Norway's best naval architects. The architects have developed the design in compliance with the conditions given by Vostok-1 based on its deepsea fishery experience and now the co-op is looking into the vessel's building.
Vostok-1 says that it is more profitable to construct the hull of the vessel in Russia. In particular, Zvezda shipbuilders have the capacities to build such hulls, but the customer should require the plant's guarantees of compliance with the construction schedule irrespective of the military orders. Vostok-1 has already refurbished three vessels at Zvezda. Those three vessels had been rebuilt for 8 months with the delays caused by new military orders treated with the greatest priority by the yard.
In 2004 Vostok-1 constructed three longliners in the South Korea. Those vessels have had a success on the grounds. The moon-pool hulls can be also built in the South Korea, but the co-op would then need to enter into partnership as the Korean builders would require an order for a series of vessels and the co-op could afford only one ship per year. Therefore now Vostok-1 is seeking 3-4 partners for the shipbuilding project. Besides, the co-op does not rule out government support.
Another variant is to find one partner capable of putting up enough money for the whole project of 5 vessels. The co-op can sell to such partner a blocking pack of 30% of its shares and spend the money to build up a series of 3-5 vessels. This money would pay for the hardware and then the investor would add its own funds according to his interest of the share stock.
Taking into account the co-op's development prospects and growing crabs and finfish prices, Vostok-1 is planning to sell the blocking pack at a price of 1 million USD per 1% of shares.
The deepsea fishery presents large prospects for the co-op's development and after getting the first results it is going to reevaluate its shares towards increasing. The above increased price covered improved product prices, the co-op's streamlining to abandon promising, but unaffordable projects and to sell the associated fixed assets. In particular, they have sold a fleet of small boats (Vlad Orion) and RTM Serena trawler in order to withdraw from very expensive trawl fishery non-typical for the company. As a result, the co-op has saved much money and in the future it plans to boost the annual profit to 6 million USD.
On 28 November 2005, even despite large debts for that moment, Mr. Ellert Vigfusson, vice-president of Iceland's major fish processing company ICELANDIC with the annual turnover of 2 billion USD, offered to purchase the whole company at 98.6 million USD, said the report. The co-op claims that the bid was interesting for ICELANDIC mainly due to the co-op's capture quotas and legality of its fishing operations. Earlier the company bought the quotas at the auction on the basis of plus 40% of the current fleet's capacities to provide for the expansion of the fleet.
Now the workforce of Vostok-1 amounts to more than 500 people. The company runs 11 vessels: 4 crabbers and 7 longliners. The main fishing species are all the commercial crab species, Alaska pollock, black and white halibut, ocean perch, cod, etc. In the outlook the co-op plans to boost its operations on the grenadier grounds. Each fishing vessel has got an individual certificate approving it to export its products made onboard. Vostok-1 says its products enjoy a strong demand on the market of the USA, Japan, Korea, China, Taiwan and a number of the European countries. The co-op's annual output amounts to several dozens of thousand metric tons of finfish and other aquatic species. Stable financial situation enables the company to invest into renewal and modernization of its fleet and to finance scientific research.