Lack of new vessels could impact future catches

The Russian fisheries sector is facing the deepest crisis in its modern history as ever tightening sanctions and growing international isolation seriously delay the building of new fishing vessels and stymie the investment plans of local fishermen.

Prior to 24 February 2022, the Russian fish sector had been steadily growing both in terms of catch dynamics and in the size of the fishing fleet. An official spokesman of Ilya Shestakov, head of the Russian Federal Agency for Fisheries (Rosrybolovstvo)—the Russian fish regulator—said in an exclusive interview that while the massive renewal of the fishing fleet in Russia began in 2018-2019 (thanks to the launch of major investment programmes by Russian fishermen) the industry has faced serious problems in recent months. The military conflict between Ukraine and Russia has put an end to plans for the further development of the industry with the same growth rates as in the past and has had a negative impact on the Russian shipbuilding segment.

Vessel building plans are behind schedule

Until now, most new fish trawlers in Russia have been built on the basis of quota distribution schemes—the mechanism by which quotas for catch in domestic territorial waters for local fisherman are provided in exchange for building of new fish trawlers and processing plants. As part of the first stage of the quotas’ distribution, according to German Zverev, president of the All-Russian Association of Fisheries (VARPE), there were plans to build 105 fishing vessels, including 41 crab catchers, worth RUB 250 billion. Of these, building of at least 43 fishing trawlers was supposed to be completed by the end of the current year, however, due to the current crisis in Russia their commissioning will be seriously delayed.

This has been recently confirmed by German Zverev who has said that out of 36 fishing vessels and 7 crab catchers, which should have been commissioned by the end of 2022, only 10 ships have been built (three of them crab catchers), while new ships will appear no earlier than 2026-2027 although according to initial state plans all the construction works were supposed to be completed by 2024-2025.

Sanctions result in increased construction costs

According to analysts from the Russian shipbuilding monopoly—the United Shipbuilding Corporation (USC), one of the reasons for this is Western sanctions, which led to a 2- to 3-fold increase in construction costs for Russian fisherman. The imposed sanctions also prevented fishermen from receiving on-board equipment (primarily those for on-board processing) for their ships from abroad. Most Russian fisherman initially planned to install the maximum sophisticated equipment on their future vessels. Most of this equipment (with rare exceptions), was supposed to be supplied to Russia by «unfriendly» countries. This forces local fisherman to consider redesigning their future trawlers and finding alternative equipment for them. According to Russian analysts, in addition to on-board processing equipment, the biggest challenge is currently observed with the supply of navigation equipment, along with engines, which were previously supplied to Russia from Poland, Germany, Finland, and even Ukraine. Analysts at the Russian Union of Fishing Collective Farms of the White Sea estimate the share of imported components in fish trawlers built at Russian shipyards to be about 80.

As most such supplies from Western states have been suspended since 24 February 2022, there is a possibility that equipment and components could be acquired from Chinese suppliers. However, most local analysts believe switching to Chinese supplies will delay the construction programmes by at least 2-3 years with a significant increase in construction costs. According to German Zverev, the refusal of Western suppliers to supply equipment ordered and partially paid for to their Russian customers will lead to a long delay in construction. He also added that despite this, domestic enterprises are still obliged to fulfill their financial obligations to banks, which provided their loans for the building of these trawlers. According to data from VARPE, the total debt burden of the Russian fishing industry already exceeds 450 billion rubles (US$6.55 billion), more than 50 of which ca be attributed to enterprises, which build fishing vessels under the investment quota programme. The commissioning of the majority of trawlers will therefore probably be postponed until 2026.

Fleet dominated by ageing vessels

Most analysts believe that this will have a significant negative impact on the industry, as the renewal of the fishing fleet in Russia has been declared one of the priorities of the Russian state and of local fisherman in recent years. Vessels that have been in operation for 25-40 years in the Russian fishing sector are estimated at 70 of the fleet, while those more than 40 years old amount to 12.

In the meantime, despite the current problems of Russian fisherman, the government is ready to conduct the second stage of the quota distribution scheme already next year (2023). As part of this, there are plans to build another 30 fishing vessels, as well as 35 crab catchers. According to state plans, about 300 billion rubles (US$4.47 billion) are supposed to be allocated for the needs of the industry, while budget revenues will reach 200 billion rubles. Still, a significant number of local analysts have serious doubts about the ability of the state to implement these plans, considering the current situation in the country. As the situation in the industry deteriorates, leading Russian fisherman have called on the state to provide additional support. Most of this support will be used to complete the building of new trawlers.

Placing orders with foreign shipyards is now more complicated

Representatives from VARPE have said that the current measures of state support are insufficient, as they do not stimulate the construction of fish trawlers in Russia, and most local fishermen still prefer to buy used vessels abroad due to lower costs and less risk of delays in construction. Since 24 February 2022 the cost of building trawlers at Russian shipyards has significantly increased, which has forced Russian fisherman to consider the choice of South Korea and other shipyards in the Asia Pacific for their ships. According to Kommersant, a business newspaper, shipyards in Asia have traditionally been cheaper than those in Russia, but in recent months the difference has become even more substantial. For example, in China, a 56-meter-long crab catcher costs three times less than a similar vessel built in Russia as part of investment quotas. However, due to current restrictions, imposed on Russian fisherman and Russian business, building of Russian vessels in Asian shipyards has become seriously complicated. Fishermen are therefore hoping for an increase in support from the state and German Zverev has noted there is a need for a more efficient system of state support for the construction of the fishing fleet and import substitution of ship equipment.

Among the planned support measures are subsidised rates on loans provided for building of new trawlers, additional capitalization of shipyards by including them on the list of industries that will be allowed duty-free import of equipment, the exemption from VAT and from other taxes and duties. Experts from Rosrybolovstvo and some independent Russian analysts in the fishing sector expect the current slowdown in building of new vessels to have a negative impact on capture fish production in Russia for years to come leading to its stagnation.

Capture fisheries production is likely to fall

In 2022 the overall fish catch in Russia amounted to 4.7 million tonnes, compared to 5.05 million tonnes in 2021 and 4.97 million tonnes in 2020. As part of state plans, during the next 3-4 years the volume of domestic catch is supposed to exceed 5.5 million tonnes, a figure that should have been achieved by the commissioning of new fish trawlers. However, due to the current situation, there is a high possibility that the volume of catch in 2023-2024 will remain at 4.6-4.7 million tonnes and possibly even decline below 4.5 million tonnes.

As the government considers various ways to support the industry, many Russian fisherman are considering revising their plans for fish catches in the future. There is a possibility that, in addition to the reduction of catch, the Russian fish sector could see massive retrenchment. As Elena Goryacheva, head of the contractual and legal department of Okeanrybflot JSC, one of Russia’s leading fish producers, said at a meeting of employers in the fishing industry, the company could be forced to dismiss 800 people from a staff of 3,100 people.

High prices for fish and seafood dampen demand

The current crisis in the Russian fish sector is deepening due to the ongoing decline of fish consumption in Russia. One of the reasons for this is a significant increase in prices of most fish and seafood on the local market and a decline in purchasing power among local consumers. According to the latest data from the Federal State Unitary Enterprise “National Fish Resources” (FGUP “Natsrybresurs”), retail prices for fish in Russia last year grew by 9.31, compared to 2021 and amounted to RUB207 (US$2.85) per kg. This is a significantly higher increase than recorded in previous years. For example, during the period 2015-2020 the total growth in prices amounted to 20.

Alexander Savelyev, head of the Russian information agency for fishing, said in an interview with the radio station Moscow Speaking that fish consumption in Russia was currently estimated at 12-14 kilograms per person per year, a figure typical of the 1960s and is partly due to the high prices for fish. These figures, however, are significantly lower than official data from the Russian Federal State Statistics Service (Rosstat), according to which per capita fish consumption in Russia in 2020 was 22 kg. In 2019 it was also 22 kg and in 2018 21.7 kg. Consumption in the period 2014-2018 varied between 19 and 21 kg. According to Savelyev and other analysts, the ever-rising fish prices in Russia are forcing more and more consumers to switch to cheaper meat. Russian fish producers and analysts hope that redirecting the domestic fish catch to the local market instead of exporting it will bring about a decline in prices.

Eugene Gerden gerden.eug@gmail.com