Latvian canneries learning survival skills in an unforgiving market

  • 2004-06-10
  • By Gary Peach
RIGA - The business of fish can be an emotional one. Take, for example, the incident with Swedish TV that occurred a year-and-a-half ago, when journalists from the country showed up in Latvia as part of their clandestine investigation of illegal cod catches.

With the help of a hidden camera, the reporter, who had posed as a potential client, managed to damage the reputation of Latvia's fishing industry, and in particular of Banga Seafood International, a Latvian-Swedish joint venture established in 1990 to supply European markets with quality fish products. Although nothing illegal was shown in the subsequent report, the fallout was serious enough that Banga Seafood was forced to cease production after a Swedish retail network refused to distribute its products. Banga Seafood reacted by taking the TV channel to court.
No doubt, in Latvia's fishing industry, which employs approximately 5,000 people and comprises 1.2 percent of gross domestic product, there seems to be at least one crisis per year - the collapse of a neighbor's financial system, an unusually cold winter freezing up fishing lanes, a major cannery declared insolvent. Banks have been reluctant to credit the industry given the high-profile losses that followed Russia's market collapse in 1998.
In the biggest such case involving Kaija, which at one point was the largest cannery in Latvia, outstanding debts have reached 3 million lats (4.5 million euros) compared with an annual turnover of 3.5 million lats. The company is already in receivership, and the next court hearing in a month-and-a-half could result in bankruptcy being declared.
The entire industry was finally stung at the start of this month when the European Union and Russia failed to breach a seemingly minor trade dispute, as a result of which fish processing companies were unable to export to the Eastern market (see story on Page 1). Losses from the one-week halt in sales were still being calculated. Whatever the final figure, in the end it will serve as further testimony to the unpredictable nature of the fishing industry.
Still, accession to the European Union has created an entirely new set of challenges - and opportunities. But in order to reap the benefits, companies must first make the grade. Canneries must undergo a rigorous inspection - of everything from sanitation to product quality - before they can export to the West. The list of norms is seemingly endless. If a single wall is not washable, or if the floor in the production area does not have a slight incline (to facilitate drainage), no authorization is issued.
Worse, all fish processors who fail to pass the inspection as of Dec. 31, 2004, will be shut down.
Of the 105 fish processing companies now working in Latvia, 74 have been approved, according to the Agriculture Ministry's food and veterinary service, and the remaining 31 are in a so-called transition period until the end of the year. (By contrast, not one Estonian food processing company sought a food safety transition period.) Ministry officials refuse to speculate how many canneries might close, though they don't deny the number of canneries will change.
"For some companies the costs of meeting EU requirements are so expensive it is easier to shut down production and start a new company," says Normunds Riekstins, head of the fisheries department at the Agriculture Ministry.
However, no matter how many companies fail to meet EU standards, the industry's output capacity will not suffer, stresses Riekstins. Existing canneries will easily make up the difference, he adds.
For their part, EU certified fish processors are excited about possibilities to work on the common market.
"Even though the competition is tougher, there are more possibilities in the EU," says Valdis Podins, executive director of Banga Seafood International, which exports over 90 percent of its output, mainly cod fillets. As he explains, EU membership makes it much easier to arrange sales, and if need be, source raw materials. In an industry beset by quotas and seasonal factors, that is extremely important.
Saleswise, fish processors are studying the potential of both the Western and Eastern market and trying to find their niche. Some are even working together. Last year four companies joined efforts to create a firm, Fishline, that offers high-end products and covers the gamut of downstream operations - processing, packaging, distribution and marketing. Though Fishline has so far been unable to penetrate Lithuanian store shelves with its pricier items, it has made headway in Latvia and Scandinavia with products such as cod liver and hand-peeled shrimp.
Looking to the future, the spotlight will be on structural funds - who will get them and how much.
A spokeswoman for the Agriculture Ministry's rural support service said last month that 30 applications for fishing-related structural funds had already been handed in. Riekstins says there are plans to use part of these funds to improve ports' landing services for fishing vessels.
The Liepaja cannery (Liepajas Zivju Konservu Kombinats), one of the largest in the country, had its reconstruction project approved for SAPARD financing in December. If all goes according to plan, the insolvent company will receive compensation for about half of the some 6.3 million euros spent on the reconstruction.