Russian seafood embargo What s next?

Transcription

1 Russian seafood embargo What s next?

2 Introduction of speakers

3 Historical update

4 Rounds of sanctions and scope of the embargo

5 What impacts for Russia and US+EU trade partners

6 Scenarii for the future?

7 Q&R

8 Thank you

9 RUSSIAN SEAFOOD BAN Seafood Expo North America 2018 March 11, 2018

10 Introduction 2 n February 2014: US, EU, other countries impose sanctions against individuals, businesses and officials from Russia and Ukraine. n July 2014: sanctions upon oil, gas and weapons sectors of RFeconomy. n August 2014: Russia responds with a ban on food imports from EU, US, Norway, Canada and Australia. n Year 2015: Russia extends ban list by adding Iceland, Liechtenstein, Albany and Montenegro; in 2016 Ukraine. n Up to 2017 further sanctions are imposed on RF banks: no more loans, transactions, financing with American banks. n The list of fish species forbidden for import includes: salmonids, flounders, tuna, herring, anchovies, tilapia, sprats and other.

11 Russian seafood ban 3 Total import to Russia, kmt Food ban led to a significant drop in import %, from 703 kmt in 2014 to 450 kmt in The biggest decrease was in volume of trout and salmon (drop by 3.7), herring drop). (49% Effects of the ban: Price growth (by 23%) Increase in domestic catch of herring, cod, mackerel. Chile and Faroe Islands as new suppliers of salmons and herring. Aquaculture development in Russia. Increase in domestic production of pork, poultry (by 20% and 21% respectively) as fish substitution Import of Pelagic, kmt Source: Federal Customs Service of Russia Atlantic herring Mackerel

12 Catch in Russia , kmt , Herring catch increased from 404 kmt to 503 kmt. Cod catch dropped in 2015 from 519 kmt to 463 kmt went up to 501 kmt. Mackerel catch increased significantly (by almost 55% from 197 kmt in 2014 to 305 kmt in 2017) , large mackerel migration to Russian waters was in evidence. 600 Herring Cod Mackerel Atlantic Herring Pacific Herring Atlantic Cod Pacific Cod Atlantic Mackerel Pacific Mackerel

13 Surimi production 5 Total global surimi production in 2017 is 820kmt (vs 790kmt in 2016) Global surimi production, kmt 6% 1% 34% Detailed global surimi production by fish species, kmt 26% 59% 59% 6% 4% 4% 1% 0,4% Cold water fish Tropical fish Fresh water fish Other Tropical fish Japan Pollock NBW Alaska Pollock Pacific Whiting Silver Carp SBW&Hoki Russian surimi market is sufficiently small. Total import in 2017 was 19 kmt. APO surimi import from USA 40-60% from total in VS 90% drop in main product tropical fish surimi imported from India, Vietnam, Thailand

14 PPP, Price indices , slight growth in purchasing power parity (30%) Purchasing power parity (Russian ruble for USD 1) moderate price increase as in 2014 Consumer price indices for goods and services, percent, Russia, fish products, as % of corresponding period last year January February March April May June July August September October November December Source: Russian Federal State Statistics Service

15 Import to Belarus 7 Export to Russia from US, EU, Norway, Canada was stopped but drastically increased their exports to Belarus. 75% of all frozen fish imported to Belarus comes from Norway, Iceland and Faroe Islands, Norway being No 1 importer. In 2017 Belarus became the second largest destination country of Norwegian fish in the world a 33% drop in trout import and a 1,5 increase in salmon import compared to The reason was trout price increase the average price for 1 MT was USD 8,151 vs salmon price of USD 7,369 for 1 MT. Import to Belarus in , kmt Import to Belarus in , kmt No import Norway Finland Iceland Lithuania Source: Belstat

16 GDP Belarus 8 Large increase in exports of fish and seafood to Russia is recorded Fish, imported from the EU countries and Norway, is processed in Belarus and delivered to Russian market Being processed, the fish changes the custom code from 0302/0303 to This delivery scheme is completely legal GDP bln. rub. GDP per capita, ths. rub. as a percentage over the previous year Source: Belstat

17 Belarus export to Russia 9 Seafood export from Belarus to Russia, kmt The largest export volume took place in 2013 (salmon mt, trout mt). In 2016 export of salmonids went down, yet mackerel export went up from 43 mt to mt Export to 3RF , kmt Salmon Trout Mackerel

18 Salmonids Import to Russia 10 Import of Salmonids to Russia, kmt Salmon, chilled Salmon, FF Trout, chilled Trout, FF Import of Chilled Salmonids to Russia, kmt and $/kg Quantity, MT Average price, $/kg

19 Aquaculture in Russia 11 Trout production stable, kmt per year. Salmon Russian production volumes insignificant 4 kmt in 2013, 7 kmt No new manufacturers and areas of trout production were introduced. Murmansk area production has grown significantly. The potential for local marine aquaculture is around 35 kmt/year. Manufacturers are facing some difficulties with lake trout. Infrastructure problems are slowing down further development. Salmonids production in Russia, kmt Salmon Trout

20 Fish processors feedback 12 By September 2014, most Russian fish processing companies have successfully replaced Norwegian fish (previously 22% of the market) by Chile and Faroe Islands produce. Supply chains remain the same. Now Chile and Faroe islands are among top-5 importers to Russia. According to processor s feedback, the changes were positive. It was difficult in the very beginning as Pacific herring is different to Atlantic in size, color, texture. It took some equipment, technology adjustment to make the switch. Nevertheless, production increased, Pacific herring replaced Atlantic herring. Consumers are satisfied.

21 Sanctions effect on consumer 13 n Imported goods pricegrowth nlocal goods price growth ngrowth of bank loans interest rates ninequal substitution of foodstuffs nless assortment and diversity on the supermarket shelf nswitch to alternatives nenjoy local ntry new fish species (pacific mackerel, pacific herring) nmore jobs in agriculture sector

22 Sanctions: Expectations vs Reality 14 Sanctions Expectation Reality Destabilize Russian economy. Limit access to cheap loans, financing. Grow dissatisfaction and resentment towards existing government within Russian electorate. Increase social tension. Switch to finance resources in Asia. Increase in national foodstuffs production. EU food exports decreased. Switch to new suppliers. Belarus economy growth. Develop national agriculture sector.

23 What s next? 15 Sanctions imposing is a politically charged issue, prolongation of sanctions regime. Growth and development of food and processing industry of the Republic of Belarus. Further development of cooperation with Asian countries. Improvement of Import substitution program development. Active agriculture (and aquaculture) development. Further adjustment of Russian economy. in the RF, new products OR Joint ventures, cooperation in processing

24 Andrey Buzin BU director 16

25 The Russian Connection Jens Garðar Helgason Fisheries Iceland

26 Seafood export

27 Importance

28 Paying the price "The price we're getting for mackerel now is only 60 percent of the price we got last year, before Russia imposed its ban on Icelandic fish," Kristinsson told Al Jazeera. "And now our family is only operating one boat instead of three, and we expect to bring in only 100 tone's of mackerel this year, compared to 350 tone's last year."

29 The computer says... NO

30 What else is new? A nation that is as dependent on foreign trade for its well-being as Iceland is must make a priority of gaining markets in as many countries as possible.

31 The show must go on

32 A. Espersen A/S We say what we do and do what we say

33 Topics Introduction Markets - Pelagics Exports Production Summary 2

34 Introduction to Espersen We are a Danish company with a proud heritage of processing whitefish for more than 80 years Origins using Baltic Cod on the island of Bornholm but now a diversified international company Turnover circa EUR300million One of world s leading buyers and processors of Atlantic groundfish species 3

35 Markets 4

36 Pelagics Effect of introduction of Sanctions in August 2015 was to instantly close the substantial markets for Pelagic species to all EU fishers plus Iceland and Norway Overnight this forced the immediate search for alternative markets The first wave of activity was for everyone to chase the traditional buyers in Nigeria, Ukraine and the like but of course this often meant buying into those routes by offering the lowest prices It was also the case that Nigeria was limiting imports for short periods of time and further added confusion Pelagic catches from the EU and Iceland are all being sold it is a lot more challenging than it used to be!

37 Pelagics Of course the opposite happened in Russia Demand did not go away immediately and the initial impact was to sharply raise the prices for what was left available to import The principal beneficiaries of this have been the Faroes and Greenland who have been able to send their products to Russia uninterrupted thoughout but their supply was - and is - nowhere near adequate Whilst there has been some cooling of the extremes it is still the case these premium prices exist Demand in Russia has of course reduced due to the lack of supply but on the other hand the much higher prices faced by the consumer have also contributed to an underlying change in core demand which may have longer term implications Should the sanctions be lifted it the market may not instantly react to better availability

38 Exports 7

39 Exports Since the introduction of Import sanctions there has not been any apparent limitation of the capability to conduct Export activity For all species of Groundfish whether on the Atlantic or Pacific side there is still very active trade in H&G, fresh and frozen formats The initial rapid devaluation of the Ruble did create confusion and opportunity in the market but more recently there has been greater stability

40 Domestic Groundfish market In parallel it is clear that use of domestic catch is increasing within the Russian market Alaska Pollock has generally been sold in H&G format domestically and has not had much change in the last few decades but the shift in production to fillets on board vessels has re- introduced higher quality product into the market that is increasing the popularity of this species In 2017 the activity in Haddock H&G moved quite sharply to internal trade and Russia became a player in the species in a different way to previously when it had mainly been a buyer when no-one else was Cod H&G exports, as yet, do not seem to have reacted in the same way probably because Cod from both the Atlantic and Pacific fisheries remains too expensive compared to other Groundfish Might this be about to change?

41 Domestic Groundfish market There is a process now nearing completion to change the fishery management in Russia to 15 year rights that will finally come into effect in January 2019 As part of this arrangement 20% of quotas have been set aside for distribution to Investment Programs That means this quantity will be awarded to those companies that establish projects for the building of vessels or processing plants within the Russian borders. The rules around this set high standards for construction and equipment design that give these facilities advanced capabilities (note the distribution of the investment quota rights is contingent on the projects being completed) There are already some of these plants opening in the Murmansk region and whilst these have so far been at limited scale the capacity and potential is considerable and is expected to expand quite quickly Focus so far has been on supporting export markets but there is likely to be a turn towards inward opportunities as this new capacity comes on stream and the appetite for tailor made products suitable for the Russian consumer is open to development

42 Raising the bar Perhaps this has been one of the key changes that has happened since the introduction of sanctions affecting food especially Like all markets the premium end will always seem to be capable of absorbing higher prices and costs provided the product delivers against the higher expectations Before the sanctions came into place the Russian market seemed to have to import products to meet these premium needs In reaction it is becoming more apparent that Russian manufacture has taken up the challenge of making better products and is now becoming more capable in meeting the higher demands this portion of the market calls for This is once again raising the consumption for premium products and looking ahead it may well be that the self-sufficiency continues to keep improving Inevitably this will filter down through all product standards and if it does then more consumers are likely to be attracted to domestic production

43 The Future? The market always responds and it is now apparent that the domestic capability is improving all the time and quality products are increasingly available Whatever the future brings it is almost certain that it will not be the same as the past..

44 Thank you