Profitability at its lowest level in a decade thanks to a rising fiscal burden, Western sanctions, expensive loans and an unprecedented labour crisis

In the first-half of 2024, the combined profit of fishing, fish processing and aquaculture companies in Russia decreased by 14.2% to RUB 60.2 billion (approximate US$550 million), according to a new study from the Russian Association of the Fishing Fleet Shipowners.

While the entire Russian economy is generally not faring well this year, with estimates made by the Russian state statistical service Rosstat finding the net profit of firms decreased by an average 1.8% in the first six months, the seafood industry ranks among the worst financial performers. Indeed, fishing industry union VARPE has calculated that nearly every second Russian fishing company was loss-making in the period.

This downturn is nothing new. It’s reckoned its financial health has been steadily deteriorating at least since 2022, and last year’s net profit fell by 15% to RUB 102.2 billion ($1.1 billion).

A key factor impacting profitability is a hike in the Central Bank’s key interest rate, says the Russian Association of Fishing Fleet Shipowners. The organisation noted that in a bid to tame inflation, the Russian Central Bank jacked up the key interest rate in several rounds to 19% as of early October 2024. In 2021, it was as low as 4.25%.

The high interest rate makes commercial loans for much more expensive, the association explained. For the Russian fishing sector, the cost of loans is particularly important since the largest players have no choice but to invest in new fleets and processing infrastructure to honour their obligations taken under the government-run investment quotas programme.

When this programme kicked off in 2017, Russian fishing companies pledged to build new vessels at domestic shipyards and fish-processing infrastructure in key fishing regions in exchange for fishing quotas.

Now though, there’s evidence the government has been stepping in in to alleviate the financial predicament, and Irina Zhvachkina, Deputy Director of Rosselhozbank, the leading agricultural bank in Russia, confirmed that of the RUB 24 billion ($280 million) of commercial loans taken by the Russian fish industry in the first-half of 2024, nearly half were loans with state-subsidised interest rates. The other half, however, were taken with interest rates of around 22% to 25%, which is far above the industry’s profitability.

Nevertheless, the industry’s investment potential is estimated at RUB 600 billion ($6.5 billion) through 2030, Zhvachkina said.