Russia considering rail transportation subsidies to address pollock glut, high fish prices

The Russian government will subsidize the transportation of pollock and salmon by rail from the country’s Far East with the intention of lowering retail prices, Russian Prime Minister Mikhail Mishustin has announced.

The challenges facing rail companies and the seafood firms that use Russia’s railways to transport their catch have been compounding but the agreement could pave the way for more of Russia's domestically-caught seafood to enter its own market instead of being exported.

Mishustin made the announcement on 26 July during a visit to the Far East's Kuril Islands. PThe proposal was crafted out of negotiations between government and seafood businesss leaders, business paper Kommersant reported. Russian Federal Agency for Fisheries Head Ilya Shestakov said the state and federal budget will compensate rail operators for bringing empty refrigerated rolling stock – or reefers – to locations in the Russian Far East, where nearly 80 percent of Russia’s catch is harvested.

Transporting the estimated 100,000 metric tons (MT) of pollock and salmon from the country's east to its population centers in the west may cost as much as RUB 400 million (USD 5.4 million, EUR 4.6 million) in subsidies, according to the Federal Agency for Fisheries. In return for that subsidy, the agency said it expects retail prices to decrease 10 percent compared to their current levels.

The idea to subsidize salmon and pollock transportation was introduced by the Association of Owners of Refrigerated Rolling Stock (AORRS) this spring. The association's members run their own reefers and platforms and rent the services of locomotives from Russian Railways, the state-owned monopoly that owns railways and almost all the locomotives in the country. The rail-car owners profits are the difference between their charges and the sums they pay to Russian Railways, making them dependent on maximizing a load run and minimizing any empty runs of their rolling stock. 

The COVID-19 pandemic has put even more pressure on the owners of refrigerated rolling stock, who have faced rising demand from seafood producers and vendors caused by China’s closure of its market to Russian seafood exports. With a glut of pollock on its hands, Russia's fishing sector looked back to its domestic market as a possible lifeline.

AORRS’s proposal to subsidize transport was well-timed, with the Russian government in the midst of a public campaign to limit inflationary rises in food prices – a socially sensitive theme for the country’s economy and population, whose incomes have been in steady decline since 2014. Seafood pricing has also come under scrutiny from Russian governmental authorities, with the Federal Agency for Fisheries conducting an analysis of price dynamics over the last five years to better understand the market and to develop recommendations for the supply chain in order to make domestically-caught seafood less expensive.

The agreement on subsidies is now taking shape as negotiations are sent to conclude soon between the Federal Agency for Fisheries, Russia's Ministry of Industry and Trade, leading rail-car providers and the national railroad industry, and retail chains. Shestakov has insisted the agreement  contain exact retail pricing terms for the species subject to transportation subsidies, but that proposition has been rejected by the Ministry of Industry and Trade, which is reluctant to include precise verbiage on pricing in the agreement, according to Kommersant.

Russian Railways said it would be ready to back an initiative targeted at increasing seafood volumes transported by rail, but warned its influence on the price of seafood at retail is just 7.5 percent of the total.

Member of AORRS's board of directors, Dalreftrans CEO Andrey Grechkin, told Kommersant that the operators are ready to provide additional discounts for seafood vendors and producers if the proposed subsidy mechanism is implemented. 

Producers and retailers, however, are far from optimistic about the scheme. Alexander Efremov, the managing director of Dobroflot, one of Russia's largest fishing companies and canned fish producers, said the Far East is merely a supplier of raw materials, with most processing occuring in the country's central regions. Typically, the price at retail is three times the price of the raw material, according to Efremov, who said he prefers the government subsidize the transportation of finished products instead of the raw fish.

Sergey Sennikov, the deputy director of international affairs and public relations for Norebo, was more positive, arguing a 20 to 30 percent reduction in the price of fish could lead to more consumption. But he said he doubted transportation subsidies alone will be enough to drop prices by that much.

A representative of retail chain Lenta said the company doesn’t want to join the proposed agreement, as the retailer has no direct contracts with fishing firms, instead buying seafood from distributors. The activity of the wholesale vendors is not subject to price regulation, so it’s impossible to make them adhere to certain prices, the Lenta representative said. Additionally, a sharp decrease in the price of pollock at retail could lead to a drop in demand for chicken, which is a profit-driver for the retail chain.

Separately, the Russian government is also exploring greater utilization of the Northern Sea Passage for the transportation of seafood from the Far East. Due to global warming and the clearance of ice from the route, it is now considered a more realistic alternative to land transportation. But any hopes about it still face the harsh reality of insufficient infrastructure and lack of freight to fill cargo hold of ships heading back to the Far East.

Photo courtesy of Matveychuk Anatoliy/Shutterstock