Opportunities in the Russian Seafood Market

Russia has emerged as the 8th major market for Sri Lanka contributing to 148 six digit HS code product categories in 2008. During the last five years this market has progressively grown each year increasing from US$ 140.2 Mn in 2003 to US$ 220.8 Mn in 2008.

In the face of increasing purchasing power of the population and a steady increase in consumer demand for a number of products Sri Lanka could exploit opportunities in the seafood sector in this market particularly in regard to warm water shrimps.

This article on the Market situation of the seafood sector in Russia is reproduced from an International Journal to encourage prospective Sri Lankan would be exporters to explore market opportunities.

Seafood is one of the fastest developing segments in the Russian food industry, and most importantly it is still a long way from saturation point. According to market observers, this is due to two key reasons: firstly the rate of growth of supply; and secondly because struggling producers and suppliers have been forced to widen the range of foods they offer.

This means that while in previous years stores would only stock frozen shrimp, consumers can now buy the likes of octopus, mussels, scallops and cuttlefish, to name but a few.

While market evolution has pursued a course of enlarging the amount of higher-grade and expensive items on offer, consumers have also come to understand much more about the sizes, glazes and other factors that contribute to a premium-quality product.

The latter characteristic sits well with the growing welfare of the population and its pursuit of healthier lifestyles.

Norge-Fish believes that with the growing purchasing power of the Russian population - forecast to grow at an impressive 20 percent annually for the foreseeable future - seafood consumption will not only grow in terms of quantity but will also raise its quality benchmarks too.

One of the more peculiar traits of the seafood sector, however, has been its export of raw materials and the country's subsequent reliance on imported ready-to-eat products.

It should come as no surprise, therefore, to learn that a handful of the market's local leaders have started to create their own production lines, aimed initially at producing more frozen and brined products, and with much more ambitious long-term plans.

Initially, the bill to upgrade the necessary equipment necessary to release an extra 800,000 tons of product annually on to the domestic market will cost in the region of $10 million.

However, looking at the longer term, the Russian retail market for seafood bears a very close similarity with that of Western Europe in that while there is massive market for budget or cheaper lines, such as shell on the peeled shrimp, squid tubes, fillets and rings and seafood cocktails, there is also a fast-growing and very lucrative market for expensive products such as warm water shrimp, spiny lobsters, scallops, octopus and crab.

The frozen seafood market

The frozen seafood market can be divided into three tiers: the lowest is the shell on shrimp with a size of 90/120 pieces per kg and a maximum price of $4 per kg in the medium tier are larger shrimps with a size of 50/80 pieces per kg, also included in this segment are mussels, seafood cocktails and squid, with prices up to $10 per kg lastly there is the upper segment, comprising such products as warm and fresh water shrimp, crab claws and lobster tails. Prices in this group are above $10 per kg.

Although all tiers demonstrate growth major sales are registered in the bottom tier. The upper segment shows an average annual growth of 20 percent particularly driven by sales of exotic shrimp in Moscow and St. Petersburg, cities that also seem relatively immune to seasonal fluctuations. Also creeping into the top layer over the last two years have been organic products.

The tendency is for customers who shop in the lower bracket to buy own brands of retail chains while those shopping in the tiers above prefer branded items of produces.

This, perhaps confirms their social status and fulfils their expectations in terms of product quality.

It is also worth noting that packaging plays an important part in the decision making process of Customers. Currently the most popular seafood is packed in 200-300g, 400-500g and 1 kg vacuum-packs, both with and without backing plates.

According to Norge-Fish, the total volume of crustaceans imported in 2006 was more than 70,000 tons of which lobsters, spiny lobsters, crabs and shrimp comprised about 60,000 tons.

Of this, the contribution from shrimp imports was 46,000 tons. During the first eight months of last year, the same import group trebled in volume, year on year. The main exporters of this segment are Denmark (58 percent) and Canada (12 percent).

In 2006, Russia imported less than 11,000 tons of molluscs, including 6000 tones of squid and octopus. In the first quarter of last year imports doubled compared to the same period of the previous year. The main exporters were Thailand (16 percent), Vietnam (11 percent) and Chile (10 percent). At the time of writing, several suppliers from these countries were not allowed to export into the Russian market as a result of sanitary rule breaches.

However, Russia is not all about warm water shrimp. In the year 2007 total consumption of coldwater varieties was estimated to exceed 50,000 tones, compared with 2002 when the assessed capacity of the Russian market was just 8000 tons. The estimated annual growth of frozen shrimp consumption is about 20 percent and Russia now shares second place in shrimp consumption with both Sweden and China, after the UK in the first place.

Russia is in the unusual situation of annually catching 4 million tons of shrimps, which are almost all exported to Korea, Japan and the USA, while she imports 90 percent of the domestic shrimp requirement from Denmark and Canada.

How has this happened? The short answer is that Russian fishery companies find it much easier to catch and immediately sell to overseas markets than to undertake the very complicated process of preliminary processing and delivery to the home market.

The seafood market growth in Russia is also well supported by a growing Japanese-style food consumption. During the last two years, roe from flying fish, as well as swordfish, eel, mussels (shell-on), large octopus and langoustines have appeared on the market and have become very popular.

Other new items are anglerfish tails, John Dory (Zeus faber) ladyfish (Elps saurus), species of parrot fish and silver pomfret (Pampus argenteus). These species can till only be found at restaurants, most of which do not need more than 10-15kg per month. However the demand is nevertheless growing.

At restaurants, patrons can also find various tunas and swordfish.

Unfortunately, these tend to be co-treated as there are no restrictions prohibiting the sale of such produce unlike in the European Union (EU).

The latest, but still extremely popular product, in restaurants are live scallops, are brought in via airfreighted from the Far East, along with species of crab and lobster.

Widely available at retail stores are species such as red mullet (Mullus surmuletus), shark steaks and fillets, seabass, gilthead bream (Sparus aurata) and red cod (Pseudophycis bachus).

The developing Russian seafood market on the whole is still very young: in the former USSR, customers could buy herring, horse mackerel, pilchards, sardine, cod and mackerel on a daily basis. Less common were flounders, halibut, squid and small shrimp: while sturgeon, canned crab meat and Pacific salmon would be rare so-called “holiday food selections”.

However by the end of the 20th Century an enormous number of species and unusual seafood appeared on the market. And yet, according to Norge-Fish, the market is still ‘very close-minded’, which means that in order to sell unusual species some traders have had to be deceitful. This has led to skinless shark fillets often being sold under the name ‘northern sturgeon’, Chilean redbait (Emmelichthys nitidus) going under the name of ‘Caspian trout’ or even ‘mountain trout’, while rock gurnard (Trigloporus lastovisa) often finds itself billed as ‘sturgeons’ fry.

Changes are also expected in the distribution sector. Most seafood is currently distributed by supermarkets and food markets, but in future it is expected that more specialized fishmonger stores will appear, selling only chilled and fresh seafood. Also the market is set to spread geographically so that while 20% of all seafood is currently sold in Moscow and St. Petersburg, the more distant regions are also being eyed by traders looking to open up new markets.

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