Fish processing and export - problems and solutions

The "Rybprom" company  - a leader of the country's fish industry - has regularly raised pressing issues of the market. In our previous publications, we talked about the development prospects of aquaculture (cultivation of commercial fish), issues on fish consumption and internal market. Meanwhile, fish processing and export problems are very actual today. Our conversation with Sungat Batyrbekov, the chairman of the council for the strategic development of the company, was dedicated to this topic.

Sungat, what is the situation with the export of Kazakhstani  fish? Is it popular abroad?

- Export is a key source of income for the whole fish industry. With regards to the prospects of the country's fish industry, aquaculture, which has become very trendy worldwide, is the most important source of revenue. Aquaculture is an alternative to fishing in natural reservoirs. But if we consider the sphere from an economic point of view, export is a dominating factor, as domestic consumption of fish is extremely small.

Is this important field supported by the Government? Authorities, including legislative and executive bodies, have always pointed out the importance of the development of export and encouraging its instruments. Unfortunately, in fact, participants of the market face certain obstacles, which prevent the development of export opportunities.

Let's look at the background of this issue. It should be noted, that only 3 republics of the USSR had special ministries of fishery: Russian, Ukrainian and Kazakh Soviet Socialistic Republics. It proved the fact that our nation had a great potential of the fish industry, and all reservoirs in the territory of Kazakhstan were of economic importance.

It is important to realize that the fish fauna of seas, lakes of Kazakhstan is mainly the result of human activity in 30-40-s of the last century. In other words, seeding was carried out in order to extract maximum economic benefits from their exploitation. Definitely, production of only 2 types of fish, which were the most adaptable, had developed (carp and perch). A number of fish species, such as white fish and sturgeon, were not subjected to mass distribution. Some fish species, for instance, catfish and snakeheads had taken root in the Ili-Balkhash Basin and bred by accident.

In the times of planned economy export potential of freshwater fish was not paid much attention. Everyone was interested in increasing production volumes, and processing was targeted at the domestic consumer. Furthermore, some types of industry were absolutely uneconomic. With the introduction of new forms of management, the question about which product of Kazakhstan's industry would be successful in foreign markets had been raised. And at the beginning of 90-s, the answer was the export of pike-perch.  The thing is in some European countries there is a fairly good and constant demand for this type of fish. Dishes of pike perch are traditionally served during some holidays, such as Easter, Christmas. Moreover, white lean pike perch meat is great for a healthy diet, and the number of its followers has grown significantly in the last 20-30 years. It is popular in Western and Northern Europe, specifically in Germany, France, Austria, the Scandinavian states and others, where a culture of consumption of freshwater and aquatic fish is well developed. But, inland reservoirs of Europe cannot provide a needed amount of pike-perch.

Initially, Russia and later Ukraine successfully entered the market of Europe, after that Kazakhstan started to export its products to this region. Thanks to the export-oriented model, the national legislature, the system of state management of the fish industry, the system of certification of entities and production control were brought up to world standards. In this way, the foundation for fish export from Kazakhstan has been laid. I think, it is fortunate, that we have fishes, like pike perch, which substantially increased the level of the economy of the fish industry in 90-s and provided good profits. If the pike perch export had not provided such good profits, the fish industry of the country would have not developed. Definitely, at one time sturgeon and sturgeon caviar production was a driving force in Western Kazakhstan. But owing to the catastrophic reduction in the stock of Caspian sturgeon and the introduction of the fishing ban of these species, and black caviar lost its relevance as an economic base of the fish industry.

- Which enterprises were in the origin of the export industry?

- At the beginning of the 90-s, there were not many players in this market. For instance, large enterprises such as "Balkhashbalyk" and "Atyraubalyk", which had been operating since Soviet times. Later, they became joint stock companies and began to develop the most promising spheres with the participation of private capital. New companies were established. One of them is our enterprise "Rybprom", which was successfully certified in 2000 and received its euro number giving the right to export goods to EU countries.

Obviously, over time, as the number of enterprises in the market and competition increased, it became harder to get access to raw materials (fish in reservoirs). However, every company wants to have an opportunity to purchase available raw materials for good prices to ensure the load of its facilities. Unfortunately, we face some problems in this issue, the main one is the chaotic development of the raw market, and ill-conceived establishment of new production facilities, mainly focused on pike perch, without clear production strategies. It resulted in the fact that today production capacity significantly exceeds the amounts of caught fish in the country. This, in turn, leads to the growth of prices of main species of raw materials, the high-cost price of final products, instability of supplies and improper order performance.

By the way, instability of product supplies and fluctuation of the prices for fish from Russia, Ukraine, and Kazakhstan has already resulted in the fact that restaurants and trading enterprises in Western Europe have been increasingly reluctant to purchase our products. Everyone prefers to cooperate with more or less predictable amounts and prices. For instance, Vietnamese Pangasius, African Catfish, Southeast Tilapia, and other artificially grown freshwater fish species have already captured a part of the European market. A number of countries made good progress in artificial breeding of commercial pike perch. Our country in order to maintain its export positions in such a competitive struggle, should focus on the scientific support for  fishing and processing, transfer of technologies and diversification of products.

 - What do you mean under "scientific support for fishing and processing"?

- It means significant scientific works on the issues of seeding, cultivation, replenishing and regulating stocks.

For example, when reservoirs of Kazakhstan were seeded with pike perch, its population rocketed. Huge amounts of fish and poor industry resulted in skin diseases, which quickly spread, and this fish for a time was recognized as being unfit for human consumption. Pike perch was even extracted from reservoirs and simply buried due to the absence of sale. Only in early 90-s intensive extraction of Kazakhstani pike perch helped it smooth over its image. It illustrates the importance of regulation of the amounts of production and control over the fish population's health.

We have a specialized branch research institute - Kazakh Institute of fisheries. It is the quality of its activity which determines the accuracy of calculations and approving fishing quotas, fishing measures, periods for fishing bans, sites for natural reproduction and etc. Accuracy of measurements and an objective approach with regards to catching quotas are needed.

Let's remember the situation in the Zaysan Irtysh basin, where the population of crayfish significantly grew. But fishermen, in spite of their applications, could not receive quotas for catching them or they were very limited. This led in the extinction of crayfish in one season due to the epizootic crayfish plague, and now it will take several years to restore the population. The same situation happens with snakehead in Balkhash and Kapchagay. The population of snakeheads is rapidly increasing and spreading more and more across Kazakhstan, and quotas for them are ridiculous. In our opinion, volumes of snakehead extraction are very low. There is an urgent need to increase the quota for its catching, in order to reduce the number of populations, until this has had a detrimental effect on the ecosystems of water bodies.

Research institutes should cooperate with business, being oriented on practical issues and providing a balance between economy and ecology. The task is difficult but achievable. There are a number of examples in world practice. We need to find common ground and develop joint solutions in order to move further in an evolutionary way. A business can provide its production sites, facilities, fleet, sites, materials, statistics, etc. for conducting qualitative research and receiving scientific recommendations for subsequent use in its work.

- What do you propose to improve the situation on the market?

- We, the specialists of Rybprom, believe that we need to more actively use the export potential of popular species in order to receive profits while developing other export positions. In other words, export should be diversified, by producing, for instance, fish species which are found in large quantities in Kazakhstan, such as bream, crucian carp, roach. Several years ago, Rybprom and the European Bank for Reconstruction and Development (EBRD) implemented a project to process bream into fish paste, sauces and flavor enhancers.

It should be noted that these types of products are becoming increasingly popular. For example, Russian enterprises actively process fish of cod species (Pollock) in surimi, which is the basis for the production of crab sticks, they also produce analog food caviar based on the use of natural ingredients.

Another promising direction, which is developing in Russia and other countries, is enzymatic hydrolysis used in the food, pharmaceutical, and feed industries.

We should not be afraid of experiments and being creative. Thus, the company “Rybprom” introduced fish production in sauces and pickles, in this way the product is already cleaned, pickled and ready for heat treatment, which helps the housewives. We have developed new methods of drying fish. Today, we export a part of the volume of such products to Europe and neighboring countries.

However, we are interested in the development of the entire industry. We believe that mechanisms should be created that would allow exporters to develop steadily and diminish their dependence on state subsidies.

- Do you think that state subsidies given to enterprises are justifiable?

- I am convinced that government assistance - in the form of grants for the purchase of equipment, tax breaks, subsidized feed costs, etc. - is necessary for the development of the aquaculture segment. Without subsidies, the mechanism of artificial breeding of commercial fish would not survive on its own.

As for processing, actually, subsidies in this segment are not necessary. Market participants simply do not have enough scientific developments to introduce new production technologies. And there is not enough access to raw materials, as I have already mentioned. If we jointly solve these problems, namely, to establish a reasonable definition and distribution of quotas for fisheries and to ensure the industrial use of modern processing technologies, then the industry will rise itself.

Our company is a vivid example of how a market participant has to try to maintain the level of processing and export. We fish in all reservoirs of Kazakhstan - Balkhash, Zaisan, Kapchagay, we have our own fishing and transport fleet. We buy a part of raw materials from the Aral and Caspian seas, other parts are imported from such countries as Russia, Kyrgyzstan, and others. Our products are certified according to the international standards and are of high quality, recognized by a wide range of consumers not only in our country but also abroad.

There are areas for development.

Talking about the ways out of the crisis, I would like to emphasize that export diversification with the development of other types of fish is, in our opinion, only one side of the problem. The second worth mentioning issue is the need to reduce the volume of exports of raw materials in favor of increasing exports of finished products.

And this problem should be approached very responsibly and carefully. Such processing companies, like ours, are interested in ensuring that the majority of raw materials is processed with a maximum level of depth. These are fish fillets and cuts, dried and smoked products, minced products, fish meal, feed for fish. The main value added should circulate in Kazakhstan. Due to this our citizens should have jobs and receive wages, and the state - taxes.

Meanwhile, there are exporters which sell only raw materials, not processing at all, or just freezing and sorting. In this case, there is no sign of the depth of processing or value added. If the state takes measures to regulate this issue, decreasing the amounts of exports of raw materials, the amounts of processed products will, definitely, go up. It would be a reasonable state approach, which is practiced by all developed countries in the world. Maximum processing of products should be carried out in Kazakhstan!

We have raised many time these issues, and they are related not only to the fish industry. Stop being a raw material dependent country. We should impose quotas for raw materials most needed for national processing, and impose for such enterprises limitations for a VAT refund. Why can't we use such instruments? Isn't the development and support of the national industry a priority for the country's economy?

I would like to note the third way. In order to increase the export of ready-to-cook materials and products, we could offer our neighbor countries to process their raw materials in Kazakhstan. For instance, fisheries of the Far East region of Russia send some parts of their products to neighboring China for processing. Similarly, we could offer our Russian partners reasonable conditions for processing, moreover, export route lay next to our borders. But we need state measures in order to implement this initiative, which nobody thinks of. But this opens good opportunities for cooperation and development of processing enterprises in Kazakhstan.

- Would it be beneficial for our neighbors?

- Why not? For instance, nowadays "Rybprom" works with Russian companies which have raw materials, but they lack processing. If we consider logistics and value, it is beneficial for them to process raw materials here. And for our company, it is a great chance to make money and load our facilities.

We have been establishing perspective cooperation with Uzbekistan. In the next year, Uzbek companies are to start breeding African catfish using our AQUA ALLIANCE feed and with our technological support. We are guaranteed to purchase their products, then we will be processing them in our factory and sell in the domestic market or abroad. Uzbeks do not have yet such modern technologies, and generally, the country has not been certified for conformity with EU requirements. Although it is a matter of time.

The same is true for Kyrgyzstan companies, which would benefit from processing their raw materials in Kazakhstan and sell them in Russian or other markets. However, from our perspective, such contracts can be implemented if there are additional facilitating mechanisms. For instance, lifting of taxes (if any) between our countries or decreasing of VAT while importing good for such initiatives.

In the conditions, where quotas for extraction of raw materials are strictly regulated, this scheme of cooperation with neighbor countries and the development of service market have become one of the ways of diversification of fish industry of Kazakhstan.

- I hope that one of the three mechanisms you have explained will be applied and the fish industry of Kazakhstan will operate profitably and steadily. Good luck!