Russian seafood professionals pinpointing lucrative opportunities for foreign investors

January 18, 2011 09:45
Putin's note about easing foreign investment into Russian food industry in 2011 called market players to look at investment opportunities in Russian fish industry more attentively.  Particularly, professionals working at Russia's large Far-Eastern fishing companies believe that taking into account some risks there are many spheres in the industry that could provide good return. 

Among the wide range of spheres, that need investment they see the following:

  • 1. Logistics.
  • a. Cold storages, first of all - in major ports. Storage price in ultra-modern cold storage in Busan, Korea is RR 8.50 to 12.00 per day per metric ton. Rates in Vladivostok and Nakhodka are 16 to 60 roubles depending on many conditions, and it's really hard to find room in high season. Please, take into account that electricity in Russia is quite a bit cheaper than in Korea. This business looks quite profitable.
  • b. The greater part of fish is delivered across Russia in refrigerated railway cars. They are old and outdated - the newest ones were produced twenty years ago. New generation of equipment is to come, and containers will replace the cars, no doubt about it. However, today's usage of containers is very much the same of cars. Like the cars travelled across Russia in links of 4-10 refrigerated cars and a compressor car, containers travel in strings together with a generator. The strings go along set routes. It's impossible to send a container to an arbitrary place in the middle of the way. It is almost impossible to put the container from a railway platform to a truck and to move it to a place far from the railway. It is all management problems. It is clear that only a large company can build customer oriented system, and we just hope that such a company one day will manage to enter Russian market.
  • c. There is no logistic for chilled fish products in Russia. Such a system would really be a green field project, and this is both a drawback and a value. A bold investor can become the first and take all the cream of a new industry in Russia. It's necessary to equip trawlers with chillers instead of freezers; to get trampers capable to deliver chilled fish to Russian ports - vessels of the kind do exist, just not in Russia; shore plants capable to process chilled fish into chilled fillet and semi-products are to be built, preferably at North Kurils, near Magadan, and at Kamchatka; even retail shops should become capable to sell chilled fish. It's necessary to arrange air delivery of the fish to mainland where major markets are located. And - most important - it's necessary to find people who will implement and manage all of this.
  • 2. Onshore processing. This is the weakest element of Russian fishing industry. It is either primitive or non-existent. Greater part of Russians (not taking Moscow into account) buy fish WR, or HG or semidressed, the main criteria is price. Ready to cook products and fillet are often treated as luxury, and sometimes are unreasonably expensive, indeed. Though at the first sight shelves are occupied with various packs and cans, actually the greater part of fish is bought frozen at sea. At the same time, Chinese fillet import into Russia grows up linearly every year, and not just because of glazing increase.

As Russian leaders said, it was onshore processing development what caused to make fishermen to deliver all the fish to Russian ports.  Actually, today the fish is mostly cleared through Customs on a tramper board for further transport to export destinations, and no doubt the Government will put pressure to change the situation.  Even today some fishing companies think about deep processing and look for partners overseas and abroad.  Why not do it in Russia?  It is not rocket science used at processing factories in China, usual knife is the major tool there.  It is easy and reasonable to move processing closer to resource owner.

  • 3. Aquaculture. Russian aquaculture potential is almost not used. We could count a few companies growing scallops and sea cucumber in Pacific Russia, and that's all. At the same time as soon as one crosses the border with China or Korea, he can see pens and cages in almost every inlet. Everybody knows success story of Norwegian and Chilean salmon. But natural conditions in Pacific Russia are very much the same. Meanwhile Duma (the Lower House of the Russian Parliament) will shortly see submission of Draft Law on Aquaculture for first reading.
  • 4. Fish retail. It seems proper to include the very beginning -the consumer interface. Surely, it is not literally food industry, but it's impossible to develop production without sales infrastructure. Looking at Moscow and two or three other cities, you wouldn't see large difference with other countries, but in the rest of Russia it's necessary to start almost from a scratch. Fish shelves in supermarkets and retail shops of the enormous country are neither occupied with modern food, nor ready to it. It contains enormous potential for revenue.
  • 5. Fishing fleet. The problem is really well known. The fleet needs to be renewed, but nobody actually has the moneys for it, neither large companies, nor small ones. Cheap long money would be accepted by many fishermen.
  • 6. Working capital. Nobody has enough money, but everybody wants to. Even now some fishing companies receive money for ship preparation and pay back with fish. Quick money is the priority for many companies, that's why export of WR and HG fish exists - usually it is the source of quick money. As soon as working capital is increased, everybody starts thinking about value adding and higher profitability. Though, it really depends on management competence.
  • 7. Development and implementation of new ideas. No doubt, Russian science exists. But probably, there are not enough competent managers there. New technologies are developed slowly, and implemented even slower. But new value added product could give extra revenue to an investor.
  • 8. Management and education
  • a. There is shortage of all categories of staff at sea - from sailors to masters. Some companies attempt to shift the responsibility to the Government, some entice experts from other companies, and a few large companies have their own training centers. Professional education system is been reestablished in Russia, and fishing industry needs to occupy its place there. Head trade is a relatively new business in Russia, but it has good future.
  • b. Management training for fishing companies is another important matter. Today low level people often drift between jobs - oil company to tourism, then to fishing. Managers of the kind sometimes cannot find Kuril islands on a map, and don't really know what are squid legs. The industry needs managers trained with fishing specifics, and a possibility to train managers from other trades.

Most investors are afraid of restrictions on foreign participation in fishing companies.  Minister Krainy thinks, they can be solved.  He spoke many times that though indeed no foreign company has got a permission to buy shares in a fishing company, the main reason for it is absence of applications.

As can be seen from the above, there are spheres for investment in Russia.  Naturally, an investor is reasonably concerned about investment protection, as high revenue is naturally accompanied with high risks.   An answer to this goes far beyond this article, but in a few words we could recommend to take care and use legal resources preparing investment contracts.  If everything is done properly, success chances are extremely high.  You also shouldn't save on salary of your representative who will look after the investments among the other things.

And the last question - why is this area not so popular among Russian investors?  Honestly - because it's necessary to work here.  Return on time investment here is a bit lower than in mining or drilling.

What is MEGAFISHNET.COM? is a global fish and seafood marketplace with an emphasis on APPROVED SUPPLIERS from such major sources as China, Russia, Vietnam, Europe, Americas, etc. More details →