October Eurofish presentation 28 October 2005 Reykjavík, Iceland by Victor Hjort Ann-Mari Haram

October Survey of the Fish Industry in Russia

October Terms of Reference Harvesting Farming Imports Raw materials Production/Processing Fleet On-shore plants Exports Markets I n v e s t m e n t s Equipment Distribution Quality The legal framework Insights Consumption Retail/Catering/ restaurants

October The Team + IFC

October The Report and this Presentation The report follows the ToRs closely This presentation: 60 minutes in total. Our objective is to present some highlights and some details from the report The presentation complements the report

October Statistics & Data Sources Accuracy and relevance Annexes

October FISH HARVESTING One of the world’s 10 top producers

October Fish and seafood harvest in ( million tonnes) Source: Rosstat

October Source: FAO *Mackerel catches: Atka mackerel included The main species (in 2003, '000 tonnes)

October Fish and seafood harvest by zones in 2003, % Source: VNIERKH

October Primary fish production (in ‘000 tonnes) * Estimate 2004*2003%, 2004/2003 Far East Basin North basin West Basin of which: Kaliningrad region St. Petersburg and Leningrad region South region Basin Caspian region Basin Other (including inland and fresh water) Catches total MAIN FISHING ZONES/ BASINS

October Total Allowable Catch (TAC) – Utilisation of resources (2003) ZoneVolume (mln tonnes) % TAC Russian Economic Zone Inland waters Foreign Economical zones Distant waters Source: VNIERKH

October Poaching “Over 75% of Russian Far East seafood smuggled” Intrafish, “Russia, South Korea mull co-operation to fight illegal fish trade” Intrafish, “Russians admit grand-scale fishery fraud –Groups of fishermen in north- west Russia admitted they fish much more cod than their quota allow” Intrafish, “Illegal cod fishing a growing problem in Barents Sea” Intrafish,

October ICES – unreported catches of cod “Estimates on unreported catches of cod in indicate that this is a considerable problem. Unreported landings of cod are estimated at , , and tonnes in 2002, 2003, and 2004, respectively, i.e. 20% in addition to official landing statistics.”

October THE NEW QUOTA SYSTEM The Federal Law “on Fishery and Conservation of Aquatic Biological Resources” No.166-FZ of 20 December 2004 (the law on fisheries) Quota auctions (2003) - Allocations based on 5 year track record -Quotas used less than 50% over 2 years are withdrawn and reallocated through auctions -Auctions for new fisheries -Resource fees introduced Multiannual quotas of at least 5 years (2004)

October Likely developments in the quota system Simplification of quota procedures Regulations for implementation for quota transfers -2005? 2006? In the meantime, the quotas are sold unofficially Foreign access to Russian quotas

October Key issues Better use and better management of fish stocks in the Russian EEZ? Better fleet management? Consolidation of the fishing industry? Degree of foreign ownership?

October FISH FARMING Strong potential?

October Dynamics of Russian fish farming ( , ‘000 tonnes) Source:Victor V. Ivin, Institute of Marine Biology,Vladivostok

October Species Freshwater culture Carp, rainbow trout, whitefish, sturgeon. Mariculture Molluscs, seaweeds and other organisms. Main species: mussels, oysters, scallops and kelp. Marine farming of finfish is not widely developed but can become more important.

October Fish feed imports (tonnes) Source: GTK

October Fish farming equipment Today: out-dated and non-specialised equipment The need /demand for foreign equipment is there. Price? Second-hand equipment from abroad. (2004:4.3 million USD) Demand for: equipment for aeration isothermal tanks for live transportation feeding equipment basins

October Key issues Production target 2006: tonnes ? Legislation? New equipment? Financing and foreign investors? Competition from other fish farming countries? Market demand?

October THE FISHING FLEET Old and outdated or dynamic?

October Key figures Beginning of 2005: units with a total capacity of hp Structure of the larger fleet by type of vessel Source: Russian maritime register 70 % of total processing capacity is on-board

October Old and Outdated? Table 9: Age of fishing vessels, year end Age of fishing vessels, year end (number of large vessels over 55 kW) Total fishing vessels/age years years years years or older Source: VNIRO

October Equipment & Manufacture Processing technology –70% share of capacity declining, partly due to age – 25% domestic origin –Imports 2004: 4.3 million USD (Germany, Korea, Japan, DK, N, ISL) Fishing gear – Competitive domestic net industry –Asian and European suppliers Coastal vessels –Potential developments

October Key issues Ship-owners confident in future? Potential for modernisation/renewal? Demand for new processing technology Distant fisheries costly to operate Financing and foreign investors?

October TRADE A Big Player

October Seafood exports from the Russian Federation ( '000 tonnes ) Live and chilled fish Frozen fish Fish fillet Salted, smoked and other process fish Crustacean product Mollusk product Canned fish and caviar Canned crustaceans Total Source: Vnierkh

October Transhipments (fish exports, ‘000 tonnes) Source: GTK and Rosstat

October Major export markets (%) Europe, incl EU Norway Asia, incl China Korea Republic Japan Africa America, incl USA Total100 Source: Rosstat

October Booming Imports (’000 Tonnes) *% of total Chilled fish Frozen fish Fish fillets Salted, smoked and other processed fish Crustaceans Molluscs Canned fish Canned crustaceans Total Source: State Customs Committee (GTK)* Preliminary data

October The major import sources Norway % Great Britain - 7.1% Mauritania - 5.6% Iceland - 4.8%

October The Trade Regime Import regulations - Import requirements - Practical aspects - Current tariffs/future tariffs following WTO accession - ”Imports” of fish caught by Russian vessels - Import measures - The case of Kaliningrad - FEZ

October HS CodeProduct DescriptionImport Duty Herring (Clupea harengus, Clupea pallasii), excluding livers and roes 10%, but not less than 0.04 Euros/kg Scomber – (Scomber scombrus and Scomber japonicus) 10%, but not less than 0.06 Euros/kg Scomber – (Scomber australasicus)10%, but not less than 0.06 Euros/kg Fish of the genus Euthynnus – Whole 10%, but not less than 0.05 Euros/kg Fish of the genus Euthynnus -- Gilled and gutted 10%, but not less than 0.05 Euros/kg Import duties

October The Trade Regime cont. Export regulations - Export tariffs Declared aim: More of the Russian seafood harvest to be processed in Russia! Higher degree of processing of Russian seafood exports!

October Future developments in trade flows Exports Asia? EU? Norway? The domestic market? Processed seafood? Imports The example of herring? New species and new suppliers? Retail sector? Globalisation!

October Key issues More Russian seafood processed by Russian on-shore plants? Influence on the trade regime? WTO-membership? More stable trade regime_ Free Trade Agreements ?

October BOOMING MARKET

October

October Auchan, Moscow, March 2005

October Source: RetailPlanet

October Source: RetailPlanet

October Source: Rosstat Annual per capita consumption of seafood Kilo Year

October Consumption of seafood in Russia per capita in 2002 (round weight, kg) SeafoodConsumption Pelagic fish (mainly herring and mackerel) 8.7 Demersal fish/Groundfish (whitefish) 5.6 Freshwater fish3.2 Crustaceans0.2 Cephalopods0.3 Molluscs, other0.2 Total18.5 Source: FAO Nutrition Database

October

October

October The Russian consumer Typical Tatjana and Ivan? Price versus quality Urban versus rural Diversity

October Key issues Continued economic growth? Continued growth in retail? Better distribution? Regionalism? More variety? New products, new suppliers?

October PROCESSING SMEs show the way

October Total production (source Rosstat) (’000 tonnes) * Live fish (excl. herring) Chilled fish (excl. herring) Frozen fish (excl. herring) Fillet frozen (excl. herring) Salted herring Herring of all type of processing Smoked fish (excl. herring) Fish dries and dry-cured Spiced and marinated products Culinary products Balyk products Caviar Seafood products other than finfish Canned fish and preserves, million conv. cans Other Seafood products including canned fish

October Structure of production capacities 2004 Source: Rosstat CapacityProduction Use Rate, % Fish cans and preserves, '000 conv. cans of which fish preserves, '000 conv. Cans Frozen herring, tonnes Frozen fish (excl. herring – tonnes) Fish fillet frozen (without herring – tonnes) Smoked fish (without herring), dry-cured fish and balyk products, tonnes of which smoked fish (excl. herring– tonnes)

October SMEs-Rapid growth small-scale enterprises in the fisheries sector in % growth since 2003 Small-scale operators >70% of the total companies registered

October Key issues Increased processing at SMEs Retail chains change the parameters – raw material sourcing, deliveries to retailers, the regional focus of the retailers On-board versus on-shore production Closer co-operation with foreign partners Foreign investment?

October FOREIGN INVESTMENTS Take off?

October Access to quotas and the fleet Pacific Andes/Tralflot Archangelsk Trawler Fleet Other companies for sale ( Quota transfers Distant waters

October On-shore Processing and Distribution Demand for technology by Russian investors (ROK1, Ledovo, Viciunai) Processing partnerships Foreign investments – existing plants and greenfield

October Investment drivers in the processing industry in Russia Avoiding high customs duties and other trade barriers Positioning the production close to the growing consumer markets Ability to react quickly to clients’ demands Reducing transport logistics and costs Saving on energy and other infrastructure costs Access to distribution throughout Russia Lower (but rising) labour costs

October Starfrost Director Dave Pearson says: "The frozen food market in Russia has changed dramatically over the past decade. We believe there is tremendous potential to work with Russian food manufacturers to meet the growing demand for value-added frozen products and convenience foods."

October FLEET New coastal vessels On-board processing – more potential? Modernisation (equipment, Fishing gear)

October FISH FARMING Potential: inland/marine Trout farming – Karelia, Moscow, St. Petersburg Salmon hatcheries Equipment Feed

October Facilitating Private Investment Transparency of the fish industry Special Economic Zones, government and regional programmes Russian banks more open to SMEs Financial institutions –Direct investments –Venture capital

October Thank you for your attention