October 2005

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Eurofish presentation

28 October 2005Reykjavík, Iceland

byVictor Hjort

Ann-Mari Haram

October 2005

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Survey of the Fish Industry in Russia

October 2005

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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 sEquipmentDistribution

QualityThe legal framework

Insights

Consumption

Retail/Catering/ restaurants

October 2005

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The Team + IFC

October 2005

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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 2005

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Statistics & Data

• Sources

• Accuracy and relevance

• Annexes

October 2005

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FISH HARVESTINGOne of the world’s 10 top producers

October 2005

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Fish and seafood harvest in 1999-2004( million tonnes)

Source: Rosstat

October 2005

9Source: FAO *Mackerel catches: Atka mackerel included

The main species (in 2003, '000 tonnes)

October 2005

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Fish and seafood harvestby zones in 2003, %

66.8%7.6%

15.7%

10.0%

Russian Economic Zone

Inland waters

Economic zones of foreign countriesOpen ocean areas

Source: VNIERKH

October 2005

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Primary fish production (in ‘000 tonnes) * Estimate

2004* 2003 %, 2004/2003

Far East Basin 1 730.2 1 972.3 87.7

North basin 673.2 729.5 92.3

West Basinof which:

Kaliningrad region 327.6 333.6 98.2

St. Petersburg and Leningrad region

29.4 30.5 96.4

South region Basin

37.1 59.6 62.2

Caspian region Basin

52.2 65.5 79.7

Other (including inland and fresh water)

63.5 62.2 102.1

Catches total 2 913.2 3 253.2 89.5

5 MAIN FISHING ZONES/ BASINS

October 2005

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Total Allowable Catch (TAC) – Utilisation of resources (2003)

Zone Volume(mln tonnes)

% TAC

Russian Economic Zone

2.21 58.6

Inland waters 0.25 53.0

Foreign Economicalzones

0.52 25.4

Distant waters 0.33 20.2

Source: VNIERKH

October 2005

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Poaching“Over 75% of Russian Far East seafood smuggled”

Intrafish, 22.09.05

“Russia, South Korea mull co-operation to fight illegal fish trade”Intrafish, 28.09.05

“Russians admit grand-scale fishery fraud –Groups of fishermen in north- west Russia admitted they fish much more cod than their quota allow” Intrafish, 19.08.05

“Illegal cod fishing a growing problem in Barents Sea”Intrafish, 12.08.05

October 2005

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ICES – unreported catches of cod

“Estimates on unreported catches of cod in 2002- 2004 indicate that this is a considerable

problem. Unreported landings of cod are estimated at 90 000, 115 000, and 90 000 tonnes in 2002, 2003, and 2004, respectively, i.e. 20% in addition to official landing statistics.”

October 2005

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THE NEW QUOTA SYSTEMThe 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 2005

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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 2005

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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 2005

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FISH FARMING Strong potential?

October 2005

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Dynamics of Russian fish farming (1991-2003, ‘000 tonnes)

0

20

40

60

80

100

120

140

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1,00

0 m

etri

c to

ns

Mariculture Freshwater culture

Source:Victor V. Ivin, Institute of Marine Biology,Vladivostok

October 2005

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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 2005

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Fish feed imports (tonnes)

0

2.000

4.000

6.000

8.000

10.000

2002 2003 2004 2005, Estimate

ton

nes

Total

Rehuraisio

Biomar

Kraftfutterwerk

Aller Aqua

Source: GTK

October 2005

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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 2005

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Key issues • Production target 2006: 600 000 tonnes ?

• Legislation?

• New equipment?

• Financing and foreign investors?

• Competition from other fish farming countries?

• Market demand?

October 2005

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THE FISHING FLEETOld and outdated or dynamic?

October 2005

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Key figuresBeginning of 2005: 5 531 units with a total capacity of 4 939 600 hp

Structure of the larger fleet by type of vessel

12,4% 1,6%

84,7%

1,3%

Fishing vessels

Factory vessels

Freezer vessels

Other

Source: Russian maritime register

70 % of total processing capacity is on-board

October 2005

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Old and Outdated?

Table 9: Age of fishing vessels, year end

Age of fishing vessels, year end(number of large vessels over 55 kW)

1999 2000 2001 2002 2003

Total fishing vessels/age

2529 2596 2607 2571 2533

0-5 years 38 60 67 57 82

5-10 years 360 305 214 155 113

10-15 years 457 477 446 425 413

15 years or older 1674 1754 1880 1934 1925

Source: VNIRO

October 2005

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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 2005

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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 2005

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TRADEA Big Player

October 2005

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Seafood exports from the Russian Federation( '000 tonnes )

2000 2001 2002 2003 2004

Live and chilled fish 103.8 65.8 137.7 81.2 45.2

Frozen fish 817.9 947.4 948.4 991.2 1041.5

Fish fillet 138.7 103.8 58.0 67.6 49.3

Salted, smoked and other process fish

45.8 24.9 16.0 9.6 16.2

Crustacean product 46.9 38.4 35.2 33.6 26.9

Mollusk product 21.1 12.5 35.8 11.4 12.1

Canned fish and caviar

15.8 16.0 17.7 23.2 31.4

Canned crustaceans 3.1 5.0 4.4 3.6 2.6

Total 1193.1 1213.8 1253.2 1221.4 1225.2

Source: Vnierkh

October 2005

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Transhipments(fish exports, ‘000 tonnes)

0200400600800

100012001400

1999 2000 2001 2002 2003 2004

Total exports

Declared exports excl.Transhipments

Source: GTK and Rosstat

October 2005

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Major export markets (%)2000 2001 2002 2003 2004

Europe, incl. 32.3 29.4 30.6 27.5 25.8

EU 18.7 17.1 17.5 12.1 11.5

Norway 12.4 11.3 11.7 6.8 6.8

Asia, incl. 35.4 49.5 52.8 55.9 57.1

China 1.5 3.4 7.9 3.8 11.1

Korea Republic 11.6 19.5 20.6 24.9 25.2

Japan 18.0 17.6 14.0 15.0 13.2

Africa 0.5 0.4 0.3 0.3 0.3

America, incl. 31.8 20.7 16.3 16.3 16.8

USA 28.5 16.0 11.6 11.6 11.1

Total 100 100 100 100 100

Source: Rosstat

October 2005

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Booming Imports(’000 Tonnes) 1999 2000 2001 2002 2003 2004* % of

total

Chilled fish 9.3 6.3 8.8 13.3 22.8 35.0 4.3

Frozen fish 264.2 304.1 391.4 414.2 464.7 584.1 71.4

Fish fillets 21.2 10.6 18.2 34.6 55.4 62.2 7.6

Salted, smoked and other processed fish

7.8 8.3 12.2 14.0 12.8 11.8 1.4

Crustaceans 4.4 7.8 12.8 18.0 26.7 35.3 4.3

Molluscs 2.1 0.8 4.4 6.2 8.1 10.8 1.3

Canned fish 115.1 119.1 138.4 94.2 86.0 70.3 8.6

Canned crustaceans

0.4 0.9 1.5 2.1 5.4 8.1 1.0

Total 424.5 457.9 587.7 596.6 711.9 817.6 100

Source: State Customs Committee (GTK) * Preliminary data

October 2005

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The major import sources

• Norway - 36.0%

• Great Britain - 7.1%

• Mauritania - 5.6%

• Iceland - 4.8%

October 2005

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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 2005

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HS Code Product Description Import Duty

0303.50.0000

Herring (Clupea harengus, Clupea pallasii), excluding livers and roes

10%, but not less than 0.04 Euros/kg

0303.74.3000

Scomber – (Scomber scombrus and Scomber japonicus)

10%, but not less than 0.06 Euros/kg

0303.74.9000

Scomber – (Scomber australasicus) 10%, but not less than 0.06 Euros/kg

0303.79.2100

Fish of the genus Euthynnus – Whole

10%, but not less than 0.05 Euros/kg

0303.79.2300

Fish of the genus Euthynnus -- Gilled and gutted

10%, but not less than 0.05 Euros/kg

Import duties

October 2005

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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 2005

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Future developments in trade flows

• Exports Asia?

EU? Norway? The domestic market? Processed seafood?

• ImportsThe example of herring?New species and new suppliers?Retail sector?

Globalisation!

October 2005

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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 2005

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BOOMING MARKET

October 2005

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October 2005

42Auchan, Moscow, March 2005

October 2005

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Source: RetailPlanet

October 2005

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Source: RetailPlanet

October 2005

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13.9

15.014.714.7

12.6

14.2

14.5

11.011.512.012.513.013.514.014.515.015.5

1998 1999 2000 2001 2002 2003 2004

Source: Rosstat

Annual per capita consumption of seafood

Kilo

Year

October 2005

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Consumption of seafood in Russia per capita in 2002 (round weight, kg)

Seafood Consumption

Pelagic fish (mainly herring and mackerel)

8.7

Demersal fish/Groundfish (whitefish)

5.6

Freshwater fish 3.2

Crustaceans 0.2

Cephalopods 0.3

Molluscs, other 0.2

Total 18.5Source: FAO Nutrition Database

October 2005

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October 2005

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October 2005

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The Russian consumer

• Typical Tatjana and Ivan?• Price versus quality• Urban versus rural• Diversity

October 2005

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Key issues

•Continued economic growth?

•Continued growth in retail?

•Better distribution?

•Regionalism?

•More variety? New products, new suppliers?

October 2005

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PROCESSINGSMEs show the way

October 2005

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Total production(source Rosstat)

(’000 tonnes) 2000 2001 2002 2003 2004*

Live fish (excl. herring) 349.6 343.9 287.1 260.0 254.0

Chilled fish (excl. herring) 100.2 104.9 140.1 105.1 75.1

Frozen fish (excl. herring) 1502.9 1675.2 1661.0 1700.9 1678.2

Fillet frozen (excl. herring) 117.9 92.7 49.4 67.7 67.8

Salted herring 32.1 33.4 34.4 41.8 41.9

Herring of all type of processing 411.2 407.1 372.9 374.8 321.0

Smoked fish (excl. herring) 23.6 26.6 28.7 33.5 34.8

Fish dries and dry-cured 8.4 9.1 9.9 10.5 11.0

Spiced and marinated products 1.6 2.4 2.5 3.5 3.7

Culinary products 8.2 11.6 16.8 37.7 47.7

Balyk products 1.1 1.3 1.6 2.1 2.0

Caviar 25.9 28.0 21.7 24.9 23.3

Seafood products other than finfish

96.2 97.5 103.6 93.3 95.2

Canned fish and preserves, million conv. cans

587.3 611.2 629.1 692.5 778.2

Other 110.3 8.9 11.5 34.6 65.0

Seafood products including canned fish

2994.8 3056.6 2961.4 3032.8 2993.1

October 2005

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Structure of production capacities 2004

Source: Rosstat

Capacity ProductionUse Rate,

%

Fish cans and preserves, '000 conv. cans 965 413 481 354 49.9

of which fish preserves, '000 conv. Cans 62 465 38 444 61.5

Frozen herring, tonnes 207 397 108 945 52.5

Frozen fish (excl. herring – tonnes) 2 520 318 1 050 472 41.7

Fish fillet frozen (without herring – tonnes) 106 567 37 345 35.0

Smoked fish (without herring), dry-cured fish and balyk products, tonnes 70 785 16 803 23.7

of which smoked fish (excl. herring– tonnes) 39 995 9 839 24.6

October 2005

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SMEs-Rapid growth

• 4 113 small-scale enterprises in the fisheries sector in 2004

• 30% growth since 2003

• Small-scale operators >70% of the total companies registered

October 2005

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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 2005

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FOREIGN INVESTMENTSTake off?

October 2005

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Access to quotas and the fleet

• Pacific Andes/Tralflot• Archangelsk Trawler Fleet• Other companies for sale (

www.dalryba.ru)• Quota transfers• Distant waters

October 2005

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On-shore Processing and Distribution

• Demand for technology by Russian investors (ROK1, Ledovo, Viciunai)

• Processing partnerships

• Foreign investments – existing plants and greenfield

October 2005

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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 2005

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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 2005

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FLEET

• New coastal vessels• On-board processing – more

potential?• Modernisation (equipment,

Fishing gear)

October 2005

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FISH FARMING

• Potential: inland/marine• Trout farming

– Karelia, Moscow, St. Petersburg

• Salmon hatcheries• Equipment• Feed

October 2005

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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 2005

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Thank you for your attention