Vergi’s fishing and processing activities continue despite headwinds

Successfully adapting to higher costs

A vertically integrated company, Vergi catches, processes, and markets pelagic fish products. The company was established in 1993 and has a fleet of vessels fishing for sprat and herring in the Baltic Sea and the Gulf of Riga. Despite the uncertainty created by the war in Ukraine and spiking energy prices the company is committed to continuing its activities.

Vergi’s processing plant in Ventspils has its own docking facilities, so the vessels returning from the Baltic Sea can land their cargoes a few meters from the factory. Vessels fishing in the Gulf of Riga land their catches in Mersrags where the company rents a dock and storage space and has employees unloading and loading the fish in forklifts for delivery by road to Ventspils. Here the fish is sorted, salted or frozen, individually or in blocks. The brief interval between the time the fish is landed and when it is processed ensures a final product of the highest quality. The vessels fish both in the Baltic Sea and in the Gulf of Riga. The fisheries are different, and the crew are paid depending on the amount they fish, so the vessels are rotated between the two areas. Fish is stored in tubs in the hold which are then lifted out with a crane when the vessel comes into port. One of the vessels has been refurbished with a cooling tank (RSW) in the hold to store the fish. When it comes into port the fish is pumped directly from the tank into the factory. The advantages are that unloading is quicker and uses less manpower, there is less manual handling of the fish, and if necessary, the fish can be stored for longer in the tank. Renovating the vessel in this way is a major investment, however.

Ivars Janeks, the owner of Vergi, a company that processes Baltic herring and sprat.

Specialists in sprat and herring

With some 10,000 tonnes of quota in the Baltic Sea for sprats and 4,500 tonnes in the Gulf of Riga for herring (as well as for some 200 tonnes of sprats), the company is one of the biggest quota holders in Latvia. Vergi has specialised in pelagic fishing and processing since its inception, but also holds a cod quota in reserve for when that fishery reopens in the Baltic. Fishing for sprat and herring is seasonal, starting in August and continuing as the water gets colder and the fish quality improves. As the sprat becomes fattier it is used for salting with spices, one of the company’s staple products, that is exported typically to Ukraine.

Salted sprat is made from fresh fish and is a ready to eat product with a shelf life of three months, says O egs Fa vi s, the sales director, and it is traditionally exported to Ukraine. The fishing season peaks in October but continues to June before stopping. When the fishing stops it is the time for repairs and maintenance of the vessels and the factory. So, in a nutshell, the product is accumulated during the season and then sold over summer, says J nis Lag ns, the managing director. Last year, however, was atypical as the warehouses for storage of the finished product were empty already in July. In an uncertain period, what with covid, inflation, rocketing energy prices, the war in Ukraine, and regulatory changes, we try to sell as rapidly as possible to reduce the risk of any unforeseen event influencing the business, he says.

Demand from the market also influences the fishing. For example, if demand for sprats increases the company will focus on catching this species. Vergi specialises in salted sprats as well as in frozen fish (herring and sprats). When the fish enters the factory it is sorted, then frozen or salted, stored, and finally exported. The frozen fish takes the form of either blocks or IQF. But while 10 years ago production was almost 100 in blocks, today over 60 is IQF, says Mr Fa vi s. Some 91 of the production is exported today almost the same as before the Russian invasion and covid. The balance goes to the local canning industry, where demand has remained firm. The company is of course highly reliant on the fish quotas for its operations. These have generally been stable in the Baltic Sea, while increasing slightly in the Gulf of Riga, says Mr Lag ns, but next year promises to be a difficult one as quotas will decline all round. Quotas are also swapped to increase access to fish that is in more demand on the market or has a higher price.

J nis Lag ns, managing director of Vergi does not find the current

economic climate conducive to taking decisions on investments in the company.

O egs Fa vi s, sales director of Vergi has seen the sales share of IQF

products rise significantly compared with frozen blocks.

Exporting sprats and herring to markets on five continents

The market in Ukraine has been affected by the war which in some cases has resulted in processing factories owned by the company’s clients in the country being destroyed. This in turn had an impact on exports, an effect which is mitigated partly by compensation schemes organised by the ministry for agriculture. Vergi, through NGOs, actively participates in consultations with the ministry to identify issues and challenges that affect the sector. The market in Belarus, another of the company’s export destinations, has also been affected by border closures and sanctions, although exports continue nonetheless. Altogether Vergi exports to almost 40 countries most recently adding the United States and the Middle East to its list of markets. In general, the company tries to balance its sales to the different markets so that no single country dominates, says Mr Fa vi s. Consumers in western markets, for example, in Spain and Italy, are not only among the communities of Eastern European living there, he asserts, but also the locals who are familiar with other kinds of small, pelagic fish such as sardines and anchovies. However, the company’s markets in Eastern Europe are still important in part because they are historical for the product, but also because the increasing cost of transport and logistics makes it more cost effective to export to countries that are geographically closer. However, finding new markets is always a priority and so the company regularly attends trade shows to promote its products and explore possibilities to find new clients. This activity is heavily supported by the European Maritime, Fisheries, and Aquaculture Fund (EMFAF) and the company finds it extremely useful.

High levels of uncertainty prevent long term planning

Today, fish frozen in blocks and individually, and the salted fish are the main products. But creating items with greater added

value is also something that is being worked on. Investments in machines for gutted and filleted fish are under consideration, says Mr Lag ns, but it is difficult to take any decisions in the current uncertain climate. Rising energy prices, for example, have a big impact on profitability as all the operations, sorting, freezing, storage etc. rely on electricity and the company expects its bills to soon increase by a factor of three. Although compensation is available from the EMFAF it will only cover part of the increase. Reducing electricity consumption is not an option as it will impinge on quality. Freezers cannot be run at higher temperatures and rescheduling operations to times when electricity is cheaper would mean that the fish is not processed immediately upon arrival when it is most fresh. The uncertainty created by the war and the spiralling prices have made it difficult to make long term plans, says Ivars Janeks, the owner of Vergi. We operate from day to day only signing short term agreements with clients. Making forecasts for the future is now close to impossible. The company has been in this situation before, he adds, as it was the same during the pandemic, when the situation could change from one day to the next.

Cost cutting is difficult without influencing quality

Quality is the most important consideration in the production and cost-saving measures that may compromise quality do not offer a solution. However, to address the rising energy costs the company is looking to install solar panels though these will only contribute to but not cover its electricity requirements. Other prices, such as for the diesel that is used for the fishing vessels and for the transport, have also increased three-fold, but the company has not cut back on its activities. The quota must be fished because it means income and the machinery of the factory is so big that it cannot be stopped. The price of the fish will be increased both this year and next but the increase will not compensate for the increase in costs. The number of employees has not gone down because finding them in the first place is difficult so releasing them would be short-sighted. In fact, the company has hired people from Belarus and Ukraine to work the three shifts that the factory runs. The instability caused by market disruptions and increasing costs has forced the company to focus on the immediate activities fishing, processing, and sales. Strategic planning takes a back seat. The idea is to keep working and to maintain people in their jobs as far as possible, says Mr Janeks, and the support we get from the

Vergi

Office: Mellužu prosp.66a-3, J rmala LV-2008, Latvia Factory: Sarkanmuižas Dambis 29, Ventspils LV-3601, Latvia sales@vergi.lv www.vergi.lv

Owner: Ivars Janeks Managing director: J nis Lag ns Sales director: O egs Fa vi s

Activities: Fishing, processing, sales, and distribution Species: Sprats, Baltic herring Products: Salted sprats, frozen blocks, IQF fish Markets: Close to 40 countries in the EU, Eastern Europe, North

America, Asia, and Africa Employees: 170 (90 in the factory, and 80 onboard the vessels and as support staff) Vessels: Six in Vergi, one in

Hanters (now owned by Vergi), one in a Polish subsidiary

state plays an important role in this regard. He also feels it is important to keep Vergi’s products on the market as they are relatively cheap and even if times are hard people will be able to afford them.

Vergis recently took over another Latvian pelagic processor, Hanters, a move that Mr Janeks, describes as part of a trend towards greater consolidation in the industry. We foresee an industry with fewer, but bigger, companies, he says. This development is partly in response to the shortfall in qualified captains and crew members who can catch fish. As they grow older there are no younger people entering to take their place, he states. The number of vessels has decreased from 200-250 vessels when Latvia acceded to the EU in 2004 to some 40 vessels today, a number that is forecast to fall still further. The closure of the cod fishery also removed vessels and crews from the industry. Mr Janeks would like to see a European-level strategy that would identify measures for the industry to take to secure its future and he is hopeful that European support for the renewal of the fleet would contribute to this goal.