Transcript of the beginning of the meeting:

Vladimir Putin: Mr Krainy, I would like to congratulate you, all fishermen and the people involved in the industry on the upcoming Fisherman’s Day and wish you every success.

Andrei Krainy: Thank you very much. We appreciate it. Russian fishermen have demonstrated truly impressive results in the past three years. The catch has been growing for three years in a row. Last year we hit the record with 4.3 million tonnes. We also scored record-high figures for many indicators, including food produce, salaries (the average salary in the industry was 28,500 roubles in 2010), and the share of domestic seafood in the market, which was 77%. I would like to report that so far this year’s results have been very impressive as well. We have caught 3%, or 60,000 tonnes, more than in the same period last year. This means that last year was very successful and this year Russian fishermen have already broken the record.

Vladimir Putin: So you can see growth compared to last year.

Andrei Krainy: Yes, compared to last year. There is no low base effect, which is a very good sign. In the last quarter we reached the growth rate of 19.8%, according to the Federal Service for State Statistics. This puts fishery at the top of Russian industries. You said that if we can reach 4.5% it would be a success. But the actual result is four times higher. The fishing season is going very well. The industry is developing steadily and the volume of import is decreasing. According to the Federal Customs Service, the import dropped by 32% in Q1 of 2011 and is currently being replaced by the domestic produce.

Vladimir Putin: 32% is a substantial figure.

Andrei Krainy: Yes, it is a lot. This was achieved mostly through the use of the frozen fish. How? We had sufficient resources to replace the imports with our domestic products. Let me show you a graph I have brought with me. I think it is clear. It shows the herring catch in the Far Eastern waters. The blue bar shows the 2010 rates, the red one shows the 2011 rates (shows the graph). You can see how the catch has increased. This is how we can replace the Norwegian herring with our own. Experts estimate that over 78% of the produce currently in the Russian market is domestically produced. If this trend persists, the goal we set for ourselves under the food security policy to reach 80% of domestic produce by 2020 may be achieved by 2013-2014.

Vladimir Putin: What can you say about the transportation of the products from the Far East?

Andrei Krainy: It is the salmon fishing season now and it is going very well. The expert forecasts have proved correct. We expect to get…

Vladimir Putin: Do the railway operators reduce their tariffs for this period?

Andrei Krainy: Mr Putin, unfortunately, during the salmon fishing season, in July and August they tend to raise the tariffs. It is clear why.

Vladimir Putin: What is happening now?

Andrei Krainy: During this period when the rates are higher we work very closely with Russian Railways. There is no shortage of cargo trains. Last year the catch was enormous and it piled up in the Far East and we had to somehow transport it to central Russia.

Now there is no problem with the availability of refrigerator cars and freezers. Regarding the possible subsidies which the fishermen asked you about …

Vladimir Putin: I understand about subsidies. What is the reason for the increase in transportation tariffs?

Andrei Krainy: Railway operators claim they have to reduce tariffs in winter and early spring when the operations are reduced. That means they have to compensate for their winter losses during the peak season. If we compare the initial price of fish and the transportation rates the correlation does not look not too good. The ratio of railway tariffs in the Moscow prices is approximately 10%.

Vladimir Putin: Of the final price?

Andrei Krainy: Of the final price. We decided to allow market intervention, but it is not an intervention of the kind that the Ministry of Agriculture is carrying out with the budget funds. It is a commercial intervention. With our assistance, the traders have taken out loans. Now they are trying to buy the fish stocks bypassing the middlemen that flock around the fishermen. They bring prices down for the fishermen and bloat them up the customers. It means the fishermen’s profit falls while middlemen earn excess profits through higher the customer prices. Now we have two companies buying fish stocks to sell them at a reasonable price.

After our last meeting I looked at the statistics. In 2010, fish prices grew by 2.3%. That means we are number 11 in the price rating of the basic products. According to the latest data, fish prices increased by 1% in June. It is a typically European indicator. In some European countries, such as the UK, fish prices increased by 3.7% in June. It means we are number six in fish and seafood prices among more than 30 European countries. So that figure is within normal limits.

However, if we launch an alternative trading system on the basis of commodity intervention, the Okean retail chain we are working with at the moment, I am sure we will be able to reduce the customer price by around 15% without any losses for the fishermen.

Vladimir Putin: How many enterprises will the chain consist of?

Andrei Krainy: It is still in the development stage. We already have 70 stores in 34 regions. De facto it is a federal chain while de jure these are several small business enterprises that operate under the same concept and the same brand. The concept was developed by the Federal Agency for Fishery. We plan to expand the chain. There are two examples, in Novosibirsk and Taganrog, where the system is already working.

Vladimir Putin: Are you working with them on a contractual basis?

Andrei Krainy: We provide operational support, which means they do not pay anything to anybody. We supply them with information. We have an electronic stock market. Participation is optional. However, at least 5,000 traders operate in the stock market every day. It means the number of buyers is about the same. They trade online. There are six Okean stores in Taganrog, a city with a population of 200,000 people. Eventually, the federal retailers operating in the city faced a dilemma: to cut prices because they were losing customers or stop their fish trade. As a result, the prices in Taganrog and Novosibirsk are now falling. If the same system can be implemented across the country, with the help of the mayors and governors, we can make sure that fish becomes much more affordable.

Vladimir Putin: The main thing is to make sure there are no monopolies.

Andrei Krainy: These companies are not connected in any way. There are no affiliate relations. These are small and medium-sized businesses setting up such stores in each region.

Vladimir Putin: I have another question regarding the law on amateur fishing. It is a draft law. Despite the clarifications provided by the agency and you personally, the discussion has revealed that the public does not understand the details of the law. We are trying to hold preliminary discussions through the Popular Front, which is gaining popularity. My experience shows that the discussion is appropriate for the draft laws that are socially important and sensitive.

Please try to see what else can be done to make the general provisions of the law clearer and, if required, to make necessary amendments and comments.

Andrei Krainy: Mr Putin, the discussion has been very extensive. We published the draft law online. The opinions are different, sometimes diametrically opposed among various groups. The business community expressed its concern in early May in Volgograd. But there are amateur fishermen as well.

You know, perhaps we could really encourage a broad discussion through the Popular Front before we submit the draft law to the State Duma.

Vladimir Putin: We can do that.

Andrei Krainy: Of course, we will have time to refine it after the first reading. But if we consider that the issue has provoked such a public response…

Vladimir Putin: It has provoked such a public response because it is a sensitive issue.

Andrei Krainy: Fair enough.

Vladimir Putin: Then do it.

Andrei Krainy: Alright.