Russia shifting to online seafood exchanges

Nearly 7,000 kilometers separates Russia’s largest seafood-producing region, the Russian Far East, and its biggest consumer markets in the central part of the country.

Spurred by that distance and by inefficiencies in country’s transportation infrastructure, over the past five years, Russia’s government and industry have jointly pursued the adoption of electronic seafood marketplaces.

In 2013, Russian President Vladimir Putin ordered the launch of online trading for domestic seafood and in response, in 2014, the St. Petersburg Exchange and the Vladivostok-based Far Eastern Auction Fish House (FEAFH) united to establish a marketplace for conducting online auctions and exchange trading of seafood. In the current arrangement, the St. Petersburg Exchange is responsible for providing the trading infrastructure, while the FEAFH is in charge of running the commercial part of the business, finding and connecting suppliers and buyers, conducting quality control, and organizing trading operations. 

The exchange significantly reduces paperwork and saves time, Sergey Lelyukhin, CEO of FEAFH, told SeafoodSource. The exchange also ensures contracts are fulfilled – an important aspect of the markets given modern business practices in Russia, he said.

In 2016, amendments to Russian legislation were made to allow foreign companies to buy seafood through the St. Petersburg Exchange. In early 2017, the first deal of this type was closed, with South Korea-based Golden Eagle company purchasing 22 metric tons of fluke produced in the Primorye region of the Russian Far East for 2.15 USD (EUR 1.92) per kilogram.  

“E-trading of seafood allows for reducing the number of intermediaries, which must decrease prices for products on shelf,” Ilya Shestakov, head of the Russia’s Federal Agency for Fisheries, commented on the launch of trading in one of his public speeches. “We welcome the participation of retail chains on the exchange.”

Since its launch, FEAFH has poured great efforts into promotion the marketplace home and abroad. It concluded agreements with a number of trade associations from China and South Korea. 

“We are educating representatives of fisheries and retailers to get them qualified and interested in exchange trading, which is still [a] new and rather difficult area for [the] Russian seafood industry,” Lelyukhin said.

In 2017, public online trading operations were demonstrated at The Eastern Economic Forum, a high-profile government-backed event designed to bring top officials from Russia and abroad and big business tycoons into discussions about the development of the Russian Far East.

“The trading session was held on the exhibition stand of the Federal Fisheries Agency. The start button was pushed by the Agency’s head Ilya Shestakov,” Lelyukhin said.

Businesses are still cautious

In the five years after the St. Petersburg Exchange was founded, several similar projects emerged or were announced across the country, but all of them have failed due to lack of interest from businesses or problems with logistics or financial and IT infrastructure. But the original exchange is still alive doing well, Lelyukhin said. More than 400 deals have been made, with 100 closed in the last five months, according to FEAFH. In spring 2019, the biggest deal – a purchase and delivery agreement for 1,000 MT of fish – was closed.  

In its 2018 report, the St. Petersburg Exchange said that its seafood trade soared by 526 percent in comparison to 2016. The statistics for 2018 have not yet been released, but last year’s results were similar to 2017’s, Lelyukhin said.

“We’re very confident with the marketplace, we think it’s what’s the future holds for the industry,” Kamchatka-based fishery Koryakmoreprodukt CEO Alexander Tkachenko told SeafoodSource. “It saves us time and money, it reduces paperwork. We just sell for the price we want, and that’s all. We are hedged against price volatility and failure to comply with the contract. Operations are very fast and reliable.” 

However, at the moment, only four fishing companies are active on the marketplace. 

“We see skepticism and high level of conservatism on the supply side,” Lelyukhin said. “Representatives [of fishing companies] don’t even want to test the exchange tool to get a better understanding of what it is like. To be honest, I cannot understand this reluctance.”

Koryakmoreprodukt’s Tkachenko said the industry’s preference for dealing in cash is the primary cause of the hold-up.

“Exchange trading requires the transparency of goods and financial operations. Many companies, fishermen, and entrepreneurs prefer making deals in cash to avoid exposure of their incomes. Thus, they try to avoid paying taxes,” he said. 

Tkachenko is optimistic more companies will adopt the new system in the future. 

“As an innovative company, we introduced many innovative things, and many were saying just like, ‘OK, let’s see which results will bring,’ and then they repeated what we had done. I think it will be the same with exchange trading,” he said.

On the demand side, things look brighter. Overall, more than 50 wholesale and retail companies are involved into trading, with 11 of them from China, South Korea, and Japan. Retailers are more open to change and innovation than fisheries, Lelyukhin said. They also were skeptical, but their attitude has been generally changed to more positive one over last months. 

“It’s convenient for retail. Today you get a mailing list with options available, today you buy, tomorrow you get the exchange’s receipt which is an equivalent of a contract. The supplier will take care of delivery to the site you want,” Lelyukhin said. “That’s all. There is nothing for you to worry about, no need to negotiate and control the quality.”

Olga Moshinskaya, a representative of Vladivostok-based Moy Mart retail chain, confirmed to SeafoodSource her company had seen benefits from participating in the marketplace. 

“It’s all about simplicity and the high speed of operations, let alone the lower price for us. For example, some options cost twice as much than when buying through the exchange,” she said. “Quality control is also good. We [don’t have to] spend our resources to ensure the supplier is reliable.” 

More state oversight over export through exchanges

The idea of bringing more transparency to the market by shifting more volume of seafood to online marketplaces appears to have outsized benefits for Russia’s seafood exporters. In October 2018, during a speech at a conference during Golden Autumn, the country’s biggest agricultural exhibition, Shestakov claimed his agency will remain strongly committed to getting auctions put into Russian seafood export infrastructure. 

“We are aware of the fact that many fisheries’ owners are far from being eager to export from auctions. So it seems we will have to make it obligatory. The agency, after consultations with businesses, will set up a list of species which will be exported only through auctions,” he said. 

In his speech, Shestakov said his agency would prioritize establishing a marketplace for pollock, caviar, and crab in the Russian Far East, as the country’s largest seafood exporting region. 

In December 2018, Shestakov brought the idea to his meeting with Russian President Vladimir Putin. He complained that highly sought-after species were being sold through auctions in major export destinations, first of all, Asian countries, meaning that lion’s share of added-value was left there. Auctions held under Russian jurisdiction will allow for the country to enjoy more economic benefits from seafood export and get a more transparent picture of goods and financial flows, Shestakov told Putin, according to a transcript of the meeting.

Since that meeting, Shestakov’s agency announced the establishing obligatory export auctions. Bu thus far, no steps have been taken to implement them. However, in recent public statements, Shestakov has made assurances that the shift toward more seafood to online marketplaces will continue.