Russian seafood embargoWhat’s next?

Introduction of speakers

Historical update

Rounds of sanctions and scope of the embargo

What impacts for Russiaand US+EU trade partners

Scenarii for the future?

Q&R

Thank you

RUSSIAN SEAFOOD BAN

Seafood Expo North America 2018

March 11, 2018

2Introduction

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, Canadaand

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.

3Russian seafood ban

Food ban led to a significant drop in import –

36%, from 703 kmt in 2014 to 450 kmt in 2017.

The biggest decrease was in volume of trout

(49%and salmon (drop by 3.7), herring

drop).

0

20

40

60

80

120

100

2013 2017

Import of Pelagic, kmt

2014 2015

Atlantic herring

2016

Mackerel

703

443 405 450

2014 2015 2016 2017

Total import to Russia, kmt

Effects of the ban:

Price growth (by 23%)

Increase in domestic catch ofherring, cod, mackerel.

Chile and Faroe Islands as new suppliersof salmons and herring.

Aquaculture development in Russia.Increase in domestic production of pork,

poultry (by 20% and 21% respectively) as fish substitution

Source: Federal Customs Service of Russia

4Catch in Russia 2014-2017, kmt

2014 - 2017, Herring catch increased from 404 kmt to 503 kmt.

Cod catch dropped in 2015 from 519 kmt to 463 kmt. 2017 – went up to 501 kmt.

Mackerel catch increased significantly (by almost 55% – from 197 kmt in 2014 to 305

kmt in 2017). 2015-2016, large mackerel migration to Russian waters was in evidence.

500

400

300

200

100

-

600

Herring

2014 2015 2016 2017

Atlantic Herring Pacific Herring

-

100

200

300

400

500

600

2017

Cod

2014 2015

Atlantic Cod

2016

Pacific Cod

-

50

100

150

200

250

300

350

Mackerel

2014 2015 2016 2017

Atlantic Mackerel Pacific Mackerel

5

• Total global surimi production in 2017 is 820kmt (vs 790kmt in 2016)

Surimi production

34%

59%

Global surimi production, kmt

6% 1%

Cold water fish Tropical fish Fresh water fish Other

59%

26%

Detailed global surimi production by fish species, kmt

Alaska Pollock

Pacific Whiting

6%

4%

4%

1%

0,4%

Silver Carp

SBW&Hoki

Tropical fish

Japan Pollock

NBW

• Russian surimi market is sufficiently small. Total import in

2017 was 19 kmt.

• APO surimi import from USA– 40-60% from total in 2013-

2014 VS 90% drop in 2015-2017

• 2015-2017 – main product – tropical fish surimi imported

from India, Vietnam, Thailand

6

• 2013-2016, slight growth in purchasing power parity (30%)

PPP, Price indices

19.42

25.33

2015 2016

Purchasing power parity (Russian ruble for USD 1)

23.98

21.28

2013 2014

• 2017 – moderate price increase as in 2014

135

130

125

120

115

110

105

100

January February March April May

Source: Russian Federal State Statistics Service

June July August September October November December

Consumer price indices for goods and services, percent, Russia, fish products, as % of corresponding period last year

2014

2015

2016

2017

7Import to Belarus

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 2016. 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.

18 000

16 000

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0

2014 2017

Import to Belarus in 2014-2017, kmt

2015

Norway

2016

Finland

0

500

1000

1500

2000

2500

3000

3500

2014 2015 2017

Import to Belarus in 2014-2017, kmt

Iceland

2016

Lithuania

No

import

Source: Belstat

8GDP Belarus

• 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 0305. This delivery scheme is completely legal

Source: Belstat

110

108

106

104

102

100

98

96

94

92

90

1 000 000

900 000

800 000

700 000

600 000

500 000

400 000

300 000

200 000

100 000

-

2011 2012 20132010

GDP bln. rub. GDP per capita, ths. rub.

2014 2015 2016

as a percentage over the previous year

9Belarus export to Russia

3 707

3 203

1 3031

436

2 049

981

32176

1625043 40

259

857

2 489

2013 2014 2015 2016 2017

Salmon Trout Mackerel

23.4 27.4 28.1 26.3 28.3

2013 2014 2015 2016

2017

➢ The largest export volume took place in 2013 (salmon – 3 707 mt, trout – 2 049 mt).

➢ In 2016 export of salmonids went down, yet mackerel export went up – from 43 mt to 2

489 mt.

Export to RF 2013-2017, kMt

Seafood export from Belarus to Russia, kmt

10Salmonids Import to Russia

120

100

80

60

40

20

02013 2014 2016

Import of Salmonids to Russia, kmt

Salmon, chilled Salmon, FF

2015

Trout, chilled Trout, FF

0.00

2.00

4.00

6.00

8.00100 000.00

80 000.00

60 000.00

40 000.00

20 000.00

-

2013 2014 2016 2017

Import of Chilled Salmonids to Russia, kmt and $/kg

Quantity, MT

2015

Average price, $/kg

11

▪ Trout – production stable, 20-23 kmt per year.

▪ Salmon – Russian production volumes insignificant – 4 kmt in 2013, 7 kmt – 2015.

▪ 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.

Aquaculture in Russia

2 59

47

23 24 23

2013 2014 2016 2017

Salmonids production in Russia, kmt

2015

Salmon Trout

12Fish processors’ feedback

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.

13Sanctions effect on consumer

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

14Sanctions: Expectations vs Reality

Sanctions

Expectation

Destabilize Russian economy.

Limit access to cheap

loans, financing. Grow dissatisfaction and

resentment towards existing government

within Russian electorate.Increase social tension.

Reality

Switch to finance resources inAsia.

Increase in national foodstuffs production.

EU food exports decreased.

Switch to new suppliers. Belarus economy growth.

Develop national agriculturesector.

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.

in the RF, new products

§ Active agriculture (and aquaculture)

development.

§ Further adjustment of Russian economy.

§ OR

§ Joint ventures, cooperation in processing

What’s next?

16

Andrey BuzinBU director

Andrey.Buzin@russianfishery.ru

The Russian Connection

Jens Garðar Helgason Fisheries Iceland

Seafood export

http://www.sfs.is/Media/theeconomicimpactoftherussiansanctionsontradebetweenicelandandrussia.pdf

Importance

http://www.sfs.is/Media/theeconomicimpactoftherussiansanctionsontradebetweenicelandandrussia.pdf

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."

https://www.aljazeera.com/indepth/features/2015/10/iceland-fish-fight-spawned-ukraine-sanctions-151007115626775.html

The computer says ... NO

https://icelandmonitor.mbl.is/news/politics_and_society/2015/08/17/russian_embargo_eu_customs_relief/

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”.

http://www.sfs.is/Media/theeconomicimpactoftherussiansanctionsontradebetweenicelandandrussia.pdf

The show must go on …

A. Espersen A/S• “We say what we do… and do

what we say”

• www.espersen.com

Introduction

Markets - Pelagics

Exports

Production

Summary

2

Topics

3

Introduction to Espersen

We are a Danish company with a proud heritage ofprocessing 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 Atlanticgroundfish species

4

Markets

Pelagics

Effect of introduction of Sanctions in August 2015 was to instantly close the substantialmarkets 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 offeringthe lowest prices

It was also the case that Nigeria was limiting imports for short periods of time and furtheradded confusion

Pelagic catches from the EU and Iceland are all being sold it is a lot more challenging thanit used to be!

Pelagics

Of course the opposite happened in Russia

Demand did not go away immediately and the initial impact was to sharply raise theprices 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

7

Exports

Exports

Since the introduction of Import sanctions there has not been any apparent limitation ofthe 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

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 Russiabecame a ‘player’ in the species in a different way to previously when it had mainly been abuyer 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 otherGroundfish

Might this be about to change?

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 InvestmentPrograms

That means this quantity will be awarded to those companies that establish projects for the buildingof vessels or processing plants within the Russian borders. The rules around this set high standardsfor 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

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 andcosts 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 bethat 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

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..

Thank you