Changes in Russia’s domestic fishing market and China’s growing maritime territorialism may push Russia to pursue closer ties with Vietnam as it seeks to sell more fish and agricultural products to Asian markets.
Russia: a fishing power
Russia’s maritime power has declined precipitously since the collapse of the Soviet Union, both because of a shrinking naval footprint and an aging trawler fleet that has lost ground to China over the course of the last 25 years. At one time, the Soviet fleet was the largest in the world. No more.
Yet in 2015, Russia remained the world’s third largest exporter of frozen fish, earning $1.8 billion and controlling 9.1% of the international market. The United States came in second at $2 billion and 10% of the market. China came in first at $2.5 billion and 12.5 % of the market. Russia remains a top-tier fisher for wild fish at sea. But with other sectors included, Russia is not a top ten exporter of fish and seafood products, falling considerably behind nations like Norway, Vietnam, and India. According to figures from 2012, non-frozen seafood exports accounted for $400 million, a figure that has likely not shifted due to declining domestic consumption, constrained credit, aging fleets, and competition.
But Russian reefers — ships with refrigerator capacity for fish and seafood — remain essential to the Asian fishing trade, a source of market influence for Russia’s Pivot to Asia. Though fishing firms have little benefited from Russian sanctions on US and EU food imports, domestic and international dynamics suggest that Russia could use its role in the Asian fishing trade to advance its trade agenda with ASEAN and Southeast Asia.
Over half of Russia’s processing capacity for fish and seafood products lies in the Russian Far East, the country’s largest fishing basin. The Far East’s food market is considerably more expensive than counterparts further west due to its isolation from regions that produce a food surplus, making the fishing trade that much more important to the local economy. The Far East’s fishing industries are geared towards export to East Asia, which net more money than domestic sales. Due to a combination of geographic concentration and under-investment, Russia is forced to import processed fish and seafood rather than processing all that it catches.
A new facility projected to process 19% of Russian fish imports based on statements issued from the FAF is now being built in the Crimean town of Kerch. This increase in capacity will allow for greater imports and production closer to Russia’s European regions, which could in turn help Russia’s Far Eastern fisheries to focus more on exports, reduce the long delays posed by massive transport distances, and lower costs for Russian consumers.
The need for aquaculture
Aquaculture could help diversify the geography of Russia’s fisheries, providing efficient, stable, transparent, and more easily taxed production to reduce the burden on Far Eastern fishers. However, aquaculture only accounts for 3-4% of the value of Russia’s annual total production, far from the more than 60% it accounts for in competing exporter China. Over 90% of China’s domestic consumption comes from aquaculture facilities. Without aquaculture, Russia’s obsolete fleet is forced to fish more for longer at sea and the Far East forced to internally export fish considerable distances to a domestic market that is struggling and less profitable.
The underdevelopment of aquaculture may also be a bridge to better business ties with Vietnam’s fishers. Vietnamese exporters have benefited from Russian counter-sanctions against the West thanks to a free trade agreement between the Eurasian Economic Union and Vietnam that took effect last October. Last January, Vietnamese firm Hung Vuong Corporation bought a 51% stake in Russian-Vietnamese joint venture RKK Holding. As part of the deal, the Russian Aquaculture Company sold its distribution arm – which accounted for 5% of the Russian market – to RKK and has opened business contacts to Vietnamese firms.
Vietnam and Russia have prioritized cooperation in aquaculture development since 2014 because of Vietnam’s concerns regarding over-fishing in the Mekong River and Russian firms’ desire to test such projects abroad before adapting them to the Russian market and political conditions. Cooperation is set to intensify as Russia shifts its market priorities towards Asia, the free trade deal deepens person-to-person and business-to-business contacts between the two markets, and mutual interests dovetail.
Russia and an evolving Asian fishing trade
China is now hardening control of its maritime claims, particularly the South China Sea where China has banned Vietnamese fishing. At the same time, China has pledged to reduce its fleet by 20,000 ships. This combination of China’s increasing control of its sovereign EEZ and ostensible promises to reduce the size of its fleet present an interesting opportunity for Russia. China’s policy shifts may drive Russia and Vietnam together based on their fishing industries’ respective needs, interests, and competitive advantages. The main driver is the role Russia’s reefer fleets and Far East ports play in the Asian fishing trade.
A recent report from Global Fishing Watch found that 30% of the world’s fishing transshipments at sea took place in Russian waters, primarily in the Far Eastern Basin in the Sea of Okhotsk. Russia owns three of the world’s top ten trafficked ports by reefer ships: Vladivostok, Murmansk, and Nevelsk, the first, third, and tenth-most trafficked, respectively. The weakness of Russia’s local institutions, thinly stretched trawler fleet, and a declining naval and merchant marine presence make the Far Eastern Basin a critical meeting point for ships avoiding oversight by transshipping at sea. Further, Vladivostok has become more attractive for fishermen because Russia has raised fuel oil export taxes and bunkering — fueling in port — is exempt from those taxes. Rosneft may also receive an ancillary benefit since it owns the Zvezda shipyard and will receive contracts for larger commercial vessels.
As China’s fishing fleet continues pushing into the South China Sea due to lack of stocks in its own litoral waters, it could force Vietnamese fishermen to resort to longer voyages, basins further afield, and greater levels of transshipments. That benefits Russia as it angles for greater economic sway in the region. Vietnamese and Russian fishing firms are likely to forge deeper links as China decides how seriously to enforce fishing bans and commit to fleet reductions. Though Russia and Vietnam compete for market share in China, they have different strengths and a mutual need to improve their aquaculture production to improve their competitiveness.