Russia's Booming Fish Industry is a Great Lesson in Why Jewed Sanctions Don't Work

[littlefieldjohn]

Russia is now a fish exporter thanks to sanctions.


When in 2014 the (Jew)nited States and the European Union slapped sanctions on Russian officials and business entities as punishment for what they called the “annexation” of Crimea and military intervention in the Donbas region of Ukraine, and, when Russia responded with its embargo on food products from those countries and rolled out a generalized policy of “import substitution” to sharply curtail dependency of the domestic economy on external factors of international relations, there were many observers both within Russia and in the West who predicted the failure of the Russian government’s efforts.

The dire predictions were based on a complete misreading of the mood and general political situation in Russia: the American legislators who initiated the sanctions believed that the punishment directed at the Kremlin entourage and big business would alienate the oligarchs from Vladimir Putin and lead to regime change, or at a minimum, to change in Russia’s foreign policy to suit better the wishes of Washington.

We now know that the stated ambition of the sanctions on Russia never worked.


Reunification with Crimea and the Western sanctions aroused swelling national pride and patriotic feelings in the broad public.

The Kremlin doubled down and has stayed the course on Crimea, on Donbas and more recently in Syria where its military support for the regime of Bashar Assad has gone directly against US and Western policies of backing the insurgents. But what about import substitution?

Within months of the Kremlin’s announcement of this policy, commentators were publishing statistics showing that import substitution was negligible. Ignoring the reality that re-creation of industrial sectors usually takes years, on the basis of first findings they predicted that import substitution would never amount to anything.


They pointed to the unbalanced structure of the Russian economy, with massive resources invested in the highly profitable energy industry providing “rents” to the ruling elites. Moreover, the investor unfriendly country ratings bode ill for attracting foreign or even local capital to restructuring.


Those remarks were largely correct, but they missed other highly relevant problems facing the plans for import substitution resulting from new business ventures and capital investment.


The bigger issues were around money, namely the cost of money and its scarcity. In 2014, Russia was still experiencing high inflation and the attempts of the Bank of Russia to contain it by tight money.

The costs of borrowing for small businesses in particular were usurious. Indeed, the disparity with the West on both counts was a direct continuation of what had been going on since the 1990s. Lack of working capital on competitive conditions was the main contributor to the flooding of the Russian market with imports and the collapse of local industry.
In its implementation of the import substitution policy, the Russian Government identified priority sectors and provided various kinds of federal assistance that included credit subsidies. It also has taken steps to maintain the ruble at a low exchange rate to protect against imports whatever happens to the sanctions and embargo.

Agriculture is one sector where the payback can be very quick if one chooses carefully the given application, as for example wheat over livestock, poultry over pork. And when the oxygen of subsidized credit was applied, the results were stunning. In 2017, despite capricious, if not malicious weather conditions in the spring and early summer, Russia is expecting its largest ever grain harvest, possibly reaching 130 million metric tons, and the country retakes its position as the world’s top wheat exporter and leading exporter of other grains and of beet sugar.

What is happening in other sectors of the economy which the Government prioritized for import substitution will be obvious only in the years to come, precisely because of the greater capital and knowhow requirements and slower payback. But given the way agriculture has responded to stimuli from the federal government, it is reasonable to expect similar success stories in manufacturing and service industries like banking, insurance, and computer programming over time.

The rising tide raises all ships, and the success of parts of agriculture have attracted big business interest not only to industrial-scale farming of grain crops but also to many other sides of food supply and processing. Such investments are being made not only by start-up small and medium sized businesses but also by the oligarchs, for whom this is a point of pride and a direct response to the wave of patriotism that has swept the country. Thus, as The Financial Times recently reported oligarch Viktor Vekselberg has been pouring vast capital via his Renova holding company into the construction of greenhouses for vegetable crops that are in great demand among Russia’s urban populations. Payback on these investments is measured in years, not months and demonstrates great confidence of Russian competitiveness against ground crops from Turkey, from Central Asia and from hothouse crops from Western Europe whenever the sanctions are lifted.

The result of these various undertakings is that Russian Federation Minister of Agriculture, Alexander Tkachev himself a farmer with large-scale interests in the sector, can report regularly on the dramatic progress being made in all areas of agricultural self-sufficiency, meaning import substitution. Indeed, in many product groupings quite apart from grains, Russia is becoming an exporter for the first time since before WWI.

In this essay, I would like to focus on one area of food production and processing that is especially surprising given the national traditions: fish.


Russia, like Serbia, has long followed the folk saying that the best fish is a pig.


This prejudice was long justified by the quality of fish products that were available in the market as from Soviet times. The improvement in assortment and appeal of these products dates from the middle of the first decade of the new millennium.

To be sure, what is happening in aquaculture did get coverage in The Financial Times article mentioned above, which gave statistics for the Murmansk-based LLC Russkoye More, an ambitious firm that is rapidly expanding to occupy the leading position as supplier of farmed salmon in what is a major import substitution project. The Russian market for fresh salmon, like the European Union market, was until two years ago entirely dominated by the Scandinavians, now on the embargo list.

Whereas The Financial Times addresses the changes in the fish sector at the corporate and macroeconomic level, here we will talk about the microeconomic level, where people live and demand meets supply.



What follows comes from my visits to supermarkets, to independent fish vendors, to covered street markets in cities and in the countryside up to 80 km from St Petersburg.


It is one thing to speak about supply at source, and another to speak about supply as it reaches consumers. The distribution and logistical chain is all the more important in products as perishable as fresh fish. Moreover, this informal sampling will look not only at fresh fish but also frozen and tinned fish to get a more comprehensive overview of the situation.

In past surveys of the changing Russian shopping basket, I pointed to some specific fish varieties that are locally grown in the Russian Northwest region. These include the sig, a fresh water member of the salmon family native to Lake Ladoga, Europe’s largest body of fresh water that is 50 km east of Petersburg, and also the minnow-sized koryushka, another native of Ladoga that each spring travels down the Neva River to the lightly saline Gulf of Finland to lay its eggs and is caught on the way in vast quantities to the great pleasure of Petersburgers.

However, the bigger picture is that as the largest country on earth, representing more than 10% of the world’s land surface, Russia has tremendous fresh water resources in terms of lakes and rivers that still abound in fish enjoying local reputation and retail distribution.


This is particularly true of the Siberian rivers; smoked delicacy fish from there are sold at high prices across the Russian Federation. In addition, of course, Russian fishing fleets based in Murmansk, to the north and in Vladivostok to the east have been and remain large suppliers of ocean fish.


What has changed is the scale of production and distribution of fresh salt water or lake and river, wild and farmed fish. Whereas in the past, the fish section in Russian supermarkets meant shelves of tinned sardines or catfish in tomato sauce, today every respectable market offers fresh fish, in filets or whole, presented on beds of ice and in better or worse condition depending on the store management.

Specialized fish stores have sprung up even in the hinterland here in the Northwest, receiving daily shipments of farmed salmon, wild gorbusha and hefty flounders, among other varieties. By local standards, these fish are all substantially more expensive sources of protein than domestic chickens or pork chops. But they obviously do find their consumers and they are priced 30% or more below West European store prices for similar fish.

Speaking of ocean fish meant until very recently fish brought to market frozen. The Soviet Union developed a large fleet of trawlers and fish processing ships that brought frozen product to port, much of it going into export. The fish were usually low grade, bony, good only for stews and soups. Intrinsically higher grade fish like cod appeared for sale in shops in bulk in contorted stages of rigor mortis, not very appealing to the faint of heart.

Now, in the past couple of years, the frozen foods bins of super markets are stocked with fish steaks packaged in clear plastic that are as attractive and as high quality as anything sold in Western Europe. These cod steaks, wild salmon (gorbusha) steaks have been flash frozen and are offered in half-kilogram portions. The labeling stresses that no preservatives have been used, that the products are natural and healthful, with detailed nutritional information provided.

In the days of the Soviet Union, the Russian fishing industry produced some world-beating tinned products including red and black caviar and Chatka brand king crab meat. These exclusive and very pricey products are exported, where they enjoy demand and are available domestically in specialty shops. However, most tinned fish traditionally fell into the category of low-grade fish in tomato sauce or very poor grade vegetable oil. Over the past several years, that has changed beyond recognition. Tinned fish of world-class quality is making its appearance on store shelves. For example, a week ago I discovered a new arrival: “premium” class chunk tuna in olive oil packaged in 200 gram glass jars. The producer is the Far East fishing fleet, and the fish name is given in Japanese as well as Russian. The product is similar in design and presentation to premium tuna on sale in Belgium at twice the price.

And finally another fish product category is worth mentioning: the salted, smoked or otherwise processed and unit-packed fish sold in the chilled products sections of supermarkets. This has expanded in product range and quality so as to be beyond recognition when compared with similar offerings just a few years ago. Many different suppliers vie in the category of cold or hot smoked, salted salmon shrink wrapped in units of 200 grams plus or minus. Herrings filets in oil or in sauces are now very attractive and of generally high quality. Anchovies and other small fish filets have proliferated. And hitherto unknown product categories such as “seafood cocktails” consisting of baby octopus and squid, pink shrimp and mussels in brine are offered in small plastic pots; quality is in no way inferior to what you would find in an up-market supermarket in Western Europe. All such alien, “indescribably awful” (гадости) foods in the judgment of your average Soviet consumer, are today welcomed as the basis for salads, as stuffing for avocados, themselves a relatively new food item to the Russian shopper. Travel abroad, and 10 million Russians do travel abroad each year, has turned them into quite sophisticated shoppers and diners. And what they have come to love they now can largely find in their supermarkets supplied by domestic producers, including all varieties of fish specialties.

The point is, that from nowhere, the Russian fishing industry has made enormous strides and, unlike the cheese industry, is fully replacing imports with equal or better quality contents and lower prices.

This is the consequence of change in demand as well as change in supply.

Demand has changed because before 2014 Russians still distrusted their compatriots and believed that everything made in their country was rubbish.

Come the Crimea annexation, come the war in Donbass and the upsurge of patriotism prodded folks to try their own. What Russia has now is a virtuous cycle: more positive expectancy, more positive supply.

http://russia-insider.com/en/politic...t-work/ri21098