What does the extended Russian import ban mean for seafood?

The Russian government’s year-long extension of the ban on food imports from across the EU, United States, Canada, Norway and Australia will have some negative effects on certain seafood supply chains, but the overall impact is expected to be minimal.

Last week, President Vladimir Putin lengthened the embargo implemented on 7 August 2014 in response to economic sanctions against Moscow over the Ukranian conflict, reciprocating a new six-month extension of the EU’s sanctions that had moved the earliest conclusion point to 31 January 2016.

But already more than 10 months into the initial ban and with no end in sight, most seafood exporters previously dependent on Russia have shifted their focus elsewhere to mitigate the impacts of the lost market.

For example, Russia had long been an important market for Norwegian seafood exports, but when the ban came into force it capped the revenues earned by those exporters at NOK 3.4 billion (EUR 389.4 million; USD 436.2 million) for the year, which was 48 percent less than achieved in 2013. However, exporters were able to offset this loss by ramping up their trade with other markets. Most notably, the EU – the country’s No. 1 market – increased its total exports by 16 percent to NOK 43 billion (EUR 4.9 billion; USD 5.5 billion).

“This [import] situation has existed for a year already. The market has adapted to it and so we don’t anticipate the extension will result in much further change,” said Ingrid Dahl Skarstein, NSC’s Director for Russia.

“Of course we would like to trade with Russia again – to give Norwegian products the maximum market opportunity,” she added.

Prior to the import ban, Russia historically accounted for between nine and 10 percent of Norwegian salmon exports. While some of this was diverted to the Far East last year, the EU took the lion’s share and ended up accounting for around 75 percent of the trade, up from 65 percent in 2013.

Last year was in fact the best year on record for Norway’s salmon exporters – thanks to increased volume and record high prices, although prices did drop slightly in early 2015 with the industry citing the loss of the Russian market as a contributing factor.

“The Russian impact on the salmon industry has in my view bottomed out,” said Gorjan Nikolik, associate director of animal protein at Rabobank International.

“Russia at its peak in 2013 consumed some 6 percent of the global Atlantic Salmon supply, nearly all of it imported. During 2014 and 2015, the salmon imports into Russia declined by roughly 50 percent. This means that 3 percent of the global supply had to find another consumer, potentially creating an oversupply situation. By now this trade flow shift has already occurred and other markets, mostly the EU, have absorbed this additional volume. We do not expect further contraction. Having said that, it may take many years, if ever, before we see Russia returning to the import levels of 2013,” he said.

Another key import for the Russian market is mackerel, and for several decades Russia had been the No. 1 end market for the U.K. mackerel sector, which is concentrated in a few key Scottish ports. In the first seven months of last year, it had exported around 15,000 metric tons (MT) of mackerel to Russia.

Despite the loss of its main market, U.K. exports of mackerel increased by 44 percent between August and December last year. Within this upturn, U.K. exports to Nigeria and China grew by GBP 17 million (EUR 23.9 million; USD 26.8 million) and GBP 5 million (EUR 7 million; USD 7.9 million) year-on-year, respectively.

Overall, U.K. mackerel exports increased by GBP 29 million (EUR 40.7 million; USD 45.6 million) to GBP 115 million (EUR 161.5 million; USD 181 million) in 2014.

This year, more mackerel has been going to China and Japan, but the U.K. fleet has struggled to find good markets for its larger sized fish, favored by Russia and Ukraine, said Ian McFadden, chairman of the Scottish Pelagic Processors Association.

“The obvious market is Nigeria but it wants the smaller sizes as consumers mostly buy per unit rather than weight. In that regard, the ban is having an effect on the industry,” said McFadden.

Russia, meanwhile, has been able to source mackerel from Iceland and the Faroe Islands.

Russian shifts

A secondary impact of the embargo is on Russian exports, primarily groundfish products such as cod and pollock, said Nikolik.

“Russia is the world’s largest producer and exporter of groundfish. Due to falling seafood imports – mostly salmon and pelagics – as well as certain other animal proteins, Russia is absorbing more of its domestic production of groundfish. These are far from substitutes for each other but in the current extreme case, Russian consumers have little choice but to focus more on the domestically sourced proteins. This is in turn supporting groundfish prices and could create difficulties for the Chinese processing industry, which is the primary processor of Russian groundfish,” he said.

In the first-half of 2014, prior to the trade ban, Russia imported 587,848 MT of seafood, valued at USD 1.3 billion (EUR 1.2 billion). During the same period, it exported 1.2 million MT of products with a value of USD 1.9 billion (EUR 1.7 billion).

Meanwhile, the Kremlin has long stressed that it is keen to see a drastic reduction in the country’s dependency on seafood imports,

Thanks to a vast territory that incorporates waters from the Barents Sea to the Sea of Japan, the Russian fleet landed 4.3 million MT of seafood in 2013, while the country’s three main processing hubs achieved a combined output of 3.8 million MT of products. And while its aquaculture sector produced a modest 140,000 MT of farmed products, Russian fishery officials are targeting reaching 500,000 MT per year in the coming years.

A State Aquaculture Plan has been implemented that forecasts production will increase to 200,000 MT by 2017 and to 410,000 MT by 2020.

At the same time, Russian officials expect to see a surge in the country’s consumption of seafood. In total, the Russian population – some 143 million people – consumed 2.1 million MT of seafood in 2013, including an estimated 1 million MT of imported products. This equated to a per capita consumption of 22kg, and the government forecasts this will soar to 28kg per capita by 2020, underpinned by increased domestic production.

Ultimately, the state believes an 80:20 split between domestic and imported products is achievable. As such, exporters shouldn’t expect business to return to familiar levels when or if the ban ends.


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