Investments in Russian aquaculture on the rise
Russia is experiencing a boom in aquaculture and is seeking to increase its farmed seafood almost threefold, to 700,000 metric tons (MT) through 2030. Investment activity in the sector during the last three years suggests the projected figure can be exceeded provided some cornerstone problems be solved and international experience be used.
This is the second article in a two-part series exploring Russia's aquaculture industry. Part one, “Russia’s aquaculture industry brimming with potential,” appeared on Thursday, 23 August.
Systemic efforts taken by the government coupled with growing demand on domestic market due to the import food embargo have encouraged massive investments into Russian aquaculture, with a few large-scale projects launched every year.
In 2017-2018, more than a dozen new initiatives to build infrastructure for fish farming were announced.
Most projects are strongly supported by local authorities as aquaculture is the best tool to get relatively cheap fish for regions located far from coastlines and to create more jobs. Some regions in Russia are even forcing the development of the sector, making it one of the top priorities.
One example of this is the government of Chelyabinsk region, which has established a special fishery council, headed by local governor Boris Dubrovsky, to advance projects in aquaculture, initially by helping in the organization of sites for farms. The region has adopted an aquaculture development program and has achieved an increase in production from 3,200 MT in 2013 to 4,700 MT in 2016, with a desire to further increase that tonnage to 7,000 MT through 2020.
“Aquaculture is as important for the region as cattle breeding and crop growing,” said Boris Dubrovsky of the initiative in one of his public speeches.
In Vologda region, Aquaproduct company is establishing a newly-branded facility for farming char, with a capacity of 2,000 to 2,500 MT a year. The investment is projected to amount to RUB 1.7 billion (USD 25.5 million, EUR 22.14 million) through 2021.
The Siberian Investment Group is also diving into the aquaculture sector, and has started the first phase of a farm in the Siberian region of Kemerovo, intent on producing 2,500 MT of rainbow trout a year. The total investment will be RUB 1.6 billion (USD 24 million, EUR 20.83 million). Next year, the company will start building a capacity for manufacturing aquaculture feed.
In the republic of Dagestan, more than 20 aquaculture projects were launched, with total investments of RUB 560 million (USD 8.4 million, EUR 7.3 million).
Primorsky Krai region in the Russian Far East attracts attention from Asian companies due to its promising potential and geographical proximity. China’s Yantai Tunsyan Foods company and Weng Lyan want to establish their farms in the territory.
Meanwhile, The Institute of Agroecology and Biotechnology is going to build a farm to grow 1,500 MT of sharptooth catfish, with investments amounting for RUB 591 million (USD 8.9 million, EUR 7.7 million), in Yaroslavl region.
In Kaluga region, The White Shrimp, the biggest farm of Pacific cleaner shrimp in Russia, was launched in 2017, with annual projected capacity of 35 tons and the possibility to increase output to 100 tons, which will make it possible to entirely substitute the current import of the species into the country.
Being on the rise and still having enough space for new projects, the aquaculture sector in Russia seems to be favored by investors. Russian Aquaculture company, the biggest player in the industry, conducted a secondary public offering on the Moscow stock exchange in late 2017. Other players are likely to post their public offerings in a few years.
Some barriers to overcome
Investment into the sector is sure to increase, as long as regulators and businesses have managed to solve some fundamental problems for the industry.
Vadim Likhachev, chairperson of the Association of Mariculture Organizations of Primorksy Krai, points out serious flaws in current legislation, which doesn’t clearly regulate how water areas can be jointly used for multiple purposes – for example, aquaculture and tourism. This flaw made authorities in the Primorsky Krai region, in the Russian Far East, deny granting 91 sites to aquaculture farms.
Some federal laws contradict each other as well. While the Ministry of Agriculture put standards for minimal harvest from a site auctioned to a private business, the Ministry of Natural Resources has recently enacted requirements for aquaculture companies to get an environmental seal of approval, which in turn is linked to the size of harvest. More harvest may lead to more environmental impact, thus making getting the seal that much more difficult. This doesn’t mention fact that the environmental impact audit to be renewed every three years costs about RUB 2 million (USD 29,400, EUR 25,355).
“Today, the investor rents a site for aquaculture for 25 years, but cannot be sure that it can be really used for aquaculture,” explained Likhachev to SeafoodSource.
Evgeny Podyapolsky, a representative of the Siberian Investment Group, highlighted the problem of getting state-funded subsidies during a meeting with regulators, Russian media reported.
Podyapolsky complained that subsidies are given to a farm, which generates at least 76 percent of its profit from selling agriculture product. But aquaculture farms operate differently – it takes up to 16 months for fish to grow and, consequently, for an aquaculture company to start generating revenue after setting up a new operation. An additional year is then needed to have a proper annual account, which means that state support is in fact only given to farms working for no less than two years, while startups are forced to go without financial aid, Podyapolsky said.
Among other problems not linked to state policy and regulation approaches, is a lack of smolt and fish feed, which are nearly 100 percent imported. Storage capacities for these items are also limited. Such issues even inspired Russian Aquaculture to purchase smolt production facilities abroad. These pains are sure to alleviate fast, however, given the boom the industry is seeing now.
Skyrocketing prices for aquaculture sites have also given stakeholders pause in their efforts. For instance, one 9.6-hectare site in the Republic of Karelia (Russian North West) was auctioned for RUB 1.5 million (USD 22,536, EUR 19,550), 500 times the asking price [RUB 3,072 (USD 46.2, EUR 40)]. Another site in the same region went for RUB 1.1 million (USD 16,540, EUR 14,334), or 2,644 times more than the initial price of RUB 416 (USD 6.3, EUR 5.4).
Photo courtesy of Russian Aquaculture