While the Russian trade ban on food products from Western countries remains in effect, exporters on two continents tell SeafoodSource it is possible for seafood companies in affected countries to trade with Ukraine, its neighbors and even Russia itself.
The advice? “Tread lightly.”
That comes from Alex Babadzhanov, general manager at SOGDA Ltd., based in Kirkland, Wash., USA. His company produces whiting, hake, Alaska salmon and green roe, a product that many U.S.-based seafood companies were sending to Russia before the trade ban.
“It’s definitely affecting the business,” he said.
The Russian government enacted the ban on 7 August against all food products, including seafood, from the United States, Canada, Australia, Norway and the EU. The ban was in direct response to economic sanctions against Russia from those western countries due to Russia’s involvement in the hostilities in Ukraine.
The opening days of the ban were a bit panicked throughout the seafood markets. In Europe, Norway suddenly needed to find a destination for 100,000 metric tons (MT) of farmed salmon Russia was expected to buy in the coming year. That number gets bigger when taking into account Norway’s herring and trout exports to Russia, too, according to Christian Chramer, director of communications for the Norwegian Seafood Council.
“In one week there is an average of 134 lorries (20-ton trucks) filled and sold to Russia,” Chramer told SeafoodSource. “Now this number is down to zero last week.”
Babadzhanov said some companies were caught so flat-footed they had product on boats already crossing the Pacific when they learned it would not be accepted at port upon arrival.
“A lot of producers are not willing to take that back,” he said.
Published reports have indicated many companies sent their products to a neighboring country, such as Belarus, did a minimal amount of processing, in some cases no more than a repacking in different boxes, and relabeled it as a product of Belarus to evade the embargo.
When asked about this practice, Babadzhanov said he didn’t know any specifics, but of the exporters caught on the water when the ban started he said, “They were forced to get creative.”
Secondary processing in other countries as a means to circumvent the ban is not necessarily a bad option, Babadzhanov said, but the mad scramble during the opening weeks of the ban cannot continue. A company repacking product will not fool Russian authorities for long, and with the ban officially on the books for only a year, being blacklisted for trying to get around it could lead to ramifications that last a lot longer than the ban itself if it’s not renewed.
“When the sanctions and embargo are over, that plant’s going to have issues,” he said.
But if a company can create a true value-add, and not just a different label, Babadzhanov said this is a legitimate and legal way to continue selling product, albeit indirectly, to Russia.
Chramer said Norwegian exporters who can do reprocessing in Europe are finding legal routes for their products to Russia despite the ban.
“The Russian ban on seafood from Norway does not include processed seafood so we expect that Norwegian seafood processed in other markets will access Russia and this is in accordance with the Russian regulation,” Chramer said.
For those who can find a legal route to Russia through other countries, there is a chance to cash in big. Babadzhanov noted the current political instability has hurt the ruble vs. the American dollar. The ratio, he said, went from 32 rubles to 1 dollar to 39:1, a “ridiculously huge jump in a short period of time.” As a result, he said, Russia’s buying power has dropped by 40 percent, and Ukraine’s has dropped by as much as 60 percent.
Even selling through a third country like China or Ukraine, exporters will benefit, Babadzhanov said, because when Russia pays suppliers, “everybody gets paid in U.S. dollars, and the dollar has not been this strong in a long time.”
The other obvious response to the ban is to find other markets, but again, Babadzhanov urged caution. Ukraine is a tempting target for his company’s hake, but the instability in that region introduces more risk. For anyone looking to move product there, Babadzhanov recommended not to deal on credit terms. Cash deposits are helpful, but the larger the better, as new costs could crop up quickly and take those deposits away fast. For an exporter who can’t cover those expenses with the deposits, “You’re taking money out of your own pocket.”
China could be an option, he added, given the coming winter months, which are typically a high-consumption time for China. “If they’re trying to move product for consumption in China, they might be able to do that.”
Alexa Tonkovich, international program director for the Alaska Seafood Marketing Institute (ASMI), said Alaska seafood exporters are looking into established markets in China, where, she said, “We’re seeing strong growth in consumption.”
Tonkovich said Alaska is also expanding established markets in Germany and France and sending representatives to scout new markets in Kazakhstan, Azerbaijan and other neighboring republics.
Chramer said China is not a primary market for Norwegian seafood, but didn’t rule it out, saying, “We see a continued interest in China.”
No matter what Western exporters do, Babadzhanov said they will have to hold on for a while. Attitudes between Russia and the Western countries have not cooled, and the ban is expected to remain on the books for at least a year, if not longer.
“It doesn’t seem like it’s going to get finished earlier,” he said.
