Russian Fishery, Agama Set To Partner On Cod, Haddock Plant
Nov 28, 2017

Russian Fishery Company (RFC) plans to team up with Agama, one of the country’s largest downstream players, on a processing plant for cod and haddock in the northwest of the country.

RFC, which is investing in seven new “super trawlers” for pollock and Pacific herring in the Far East, hopes to be awarded investment quotas for the project in an auction set to take place in May or June, the company’s top executive told Undercurrent News.

“We will be participating and want to build such a plant too,” said Andrey Teterkin, RFC’s CEO.

YuryAlasheev, the co-founder of Agama, confirmed the plan to Undercurrent.

RFC has already got investment quotas for a processing plant in the Far East, for pollock and Pacific herring, where it is partnered with the Vladivostok Sea Fishing Port.

The idea behind teaming up with Vladivostok Sea Fishing Port and Agama is to tap expertise a fishing company does not have.

“It would be risky to go alone, so we have partners in both,” said Teterkin. “In the northern region, it’s Agama, the number one brand in fish processing in Russia. We are very happy to be partners with them on this venture.”

In the Far East, the plant will be able to do 100 metric tons of finished products per day, with the northern plant for cod and haddock able to do 60t. 

“Going into cod in the north has been in our strategy for many years, but we have not been able to secure a deal. So, this processing plant would be an entry to the market. We are very, very interested in this,” Teterkin told Undercurrent.

“The government plans to be watching very closely that all participants who want to build the plants will be decent investors, fully complying with all requirements of the investment quota program,” he said.

A plant for cod and haddock will give RFC a foot in the door in resources it has been eyeing for some time.

RFC confirmed earlier in the year it had been in talks to buy FEST group of companies, a large whitefish and pelagic fishing company based in the western port of Murmansk; but no deal was agreed. “The negotiations were stopped in Q4 of 2017 because of lack of commitment from the sellers’ side”, an RFC spokesman told Undercurrent, at the time.

Back in 2013, RFC was in the running to buy Arkhangelsk Trawler Fleet (ATF), another large cod and haddock catching company. However, Virma, a member of Russia's Northwest Fishing Consortium, won the auction to take over ATF, which was state-owned.

Russia is exception, not rule

Although the company sees a rationale in going into processing in Russia to secure more quotas, there are not plans to look at downstream acquisitions overseas.

“No, we will try to avoid acquisitions. In our view, it should be done with alliances and partnerships with our esteemed customers,” said Teterkin.

“The onshore processing in Russia is the exception. We are getting quota for it, which helps to maintain and expand our presence in the resources. Also, it’s a way to test the water in downstream products, but it’s rather the exception,” he said. “We are not going to tie up capital in processing, but focus on upstream, as the most profitable and attractive part of the chain.”

Pollock plant plans 

While RFC awaits the auction on the cod and haddock, the pollock plant has been confirmed.

“The decision has been made [on the pollock plant]; we will be building this plant with our partner. As a result, when the plant is commissioned, we will get an extra 14,500t of pollock and herring quota,” said Teterkin.

RFC announced the plan in April and said construction will begin this year. The annual processing capacity of the factory, which will be close to Vladivostok, will be more than 60,000t of pollock, with an output of 25,000t of value-added products. RFC intends to have the plant in operation in 2020. The total investment in the project is planned at the level of million-m.

The plant will produce fillet blocks from headed and gutted (H&G) fish, as well as more value-added items.

“We have based our investment decision on the economics, the price differential, between H&G blocks and double frozen PBO [pin-bone out] blocks. As a logical extension, we will be also producing value-added products from double frozen fillets, or directly from H&G blocks,” he said.

Generally speaking, RFC has identified four target markets for its products.

“These are the domestic market of Russia; South Korea for whole round; Europe for fillets and China for any kind of fish, mostly fillets and their derivatives. Between 400,000t-450,000t of raw fish goes to the Russian market, we estimate,” he said.

Value-chain integration

Although RFC does not plan on processing integration outside of Russia, Teterkin has some bold views on the way the value-chain needs to change. 

"We see that the value chain in the seafood industry is rather short, where it consists of three stages. Upstream; mid-stream, like processors in Europe; then the third stage is the final outlet where the sale takes place, in retail or foodservice," he said. 

"We believe that, if we can integrate those three stages into one, using various tools and instruments that become available with various digital technologies, including block chain, smart contracts, and so on, that approach could really be a breakthrough, in terms of being very quick, very efficient in reaching out to our final customers without losing time and efficiency in the supply chain," said Teterkin. 

"We have the product and the resource, but there are other two stages in the value chain between the final users and us. Essentially, what happens is that every company is trying to first implement its own internal management information systems, most often ERP [enterprise resource planning]-type solutions to do the job of its business processes rationalization, but again focusing on itself, internally and not on the full data integration with your suppliers and customers. In fact, such situation is not promoting the product, it’s stopping it from going quickly to the final customer who pays the money," he said. 

"The idea is to use new technologies, these platforms, to create an ecosystem where the final customer wishing to eat pollock will be able to transmit the signal uninterrupted through the whole value chain back to an upstream company, like us," said Teterkin. "At that point, the customer may even know which vessel and in which fishing subzone will be fishing his pollock, or herring or cod. It sounds like a dream, but we will work on this dream to try and make it come true."

This is the next step for the company, he said. 

"This also signifies the turn our company is making, moving from the focus on fishing tons, the average daily catch and what is happening in the sea. We are turning to focus on the market, product innovation and making sure we are participating in the value-chain integration that I have just mentioned," said Teterkin.

"That’s the next step in our corporate strategy. We’re sure it will prove successful and improve our financial performance. Russians have been traditionally good at IT and we want to put it to the best use of our business, and not only for premium species like crab, but also to the mass species like pollock and herring and we see no reason why we should not be doing that for high-volume fishing too," he said. 

“This will allow us to supply the Russian market and also China and South East Asia,” he said.

--Quoted from Undercurrent news.

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