1. October 2005 1 Eurofish presentation 28 October 2005 Reykjavík, Iceland by Victor Hjort Ann-Mari Haram

2. October 2005 2 Survey of the Fish Industry in Russia

3. October 2005 3 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

4. October 2005 4 The Team + IFC

5. October 2005 5 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

6. October 2005 6 Statistics & Data Sources Accuracy and relevance Annexes

7. October 2005 7 FISH HARVESTING One of the world’s 10 top producers

8. October 2005 8 Fish and seafood harvest in 1999-2004 ( million tonnes) Source: Rosstat

9. October 2005 9 Source: FAO *Mackerel catches: Atka mackerel included The main species (in 2003, '000 tonnes)

10. October 2005 10 Fish and seafood harvest by zones in 2003, % Source: VNIERKH

11. October 2005 11 Primary fish production (in ‘000 tonnes) * Estimate 2004*2003%, 2004/2003 Far East Basin1 730.21 972.387.7 North basin673.2729.592.3 West Basin of which: Kaliningrad region327.6333.698.2 St. Petersburg and Leningrad region 29.430.596.4 South region Basin 37.159.662.2 Caspian region Basin 52.265.579.7 Other (including inland and fresh water) 63.562.2102.1 Catches total2 913.23 253.289.5 5 MAIN FISHING ZONES/ BASINS

12. October 2005 12 Total Allowable Catch (TAC) – Utilisation of resources (2003) ZoneVolume (mln tonnes) % TAC Russian Economic Zone 2.2158.6 Inland waters0.2553.0 Foreign Economical zones 0.5225.4 Distant waters0.3320.2 Source: VNIERKH

13. October 2005 13 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

14. October 2005 14 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.”

15. October 2005 15 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)

16. October 2005 16 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

17. October 2005 17 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?

18. October 2005 18 FISH FARMING Strong potential?

19. October 2005 19 Dynamics of Russian fish farming (1991-2003, ‘000 tonnes) Source:Victor V. Ivin, Institute of Marine Biology,Vladivostok

20. October 2005 20 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.

21. October 2005 21 Fish feed imports (tonnes) Source: GTK

22. October 2005 22 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

23. October 2005 23 Key issues Production target 2006: 600 000 tonnes ? Legislation? New equipment? Financing and foreign investors? Competition from other fish farming countries? Market demand?

24. October 2005 24 THE FISHING FLEET Old and outdated or dynamic?

25. October 2005 25 Key figures Beginning of 2005: 5 531 units with a total capacity of 4 939 600 hp Structure of the larger fleet by type of vessel Source: Russian maritime register 70 % of total processing capacity is on-board

26. October 2005 26 Old and Outdated? Table 9: Age of fishing vessels, year end Age of fishing vessels, year end (number of large vessels over 55 kW) 19992000200120022003 Total fishing vessels/age 25292596260725712533 0-5 years3860675782 5-10 years360305214155113 10-15 years457477446425413 15 years or older 16741754188019341925 Source: VNIRO

27. October 2005 27 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

28. October 2005 28 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?

29. October 2005 29 TRADE A Big Player

30. October 2005 30 Seafood exports from the Russian Federation ( '000 tonnes ) 20002001200220032004 Live and chilled fish103.865.8137.781.245.2 Frozen fish817.9947.4948.4991.21041.5 Fish fillet138.7103.858.067.649.3 Salted, smoked and other process fish 45.824.916.09.616.2 Crustacean product46.938.435.233.626.9 Mollusk product21.112.535.811.412.1 Canned fish and caviar 15.816.017.723.231.4 Canned crustaceans3.15.04.43.62.6 Total1193.11213.81253.21221.41225.2 Source: Vnierkh

31. October 2005 31 Transhipments (fish exports, ‘000 tonnes) Source: GTK and Rosstat

32. October 2005 32 Major export markets (%) 20002001200220032004 Europe, incl.32.329.430.627.525.8 EU18.717.117.512.111.5 Norway12.411.311.76.8 Asia, incl.35.449.552.855.957.1 China1.53.47.93.811.1 Korea Republic11.619.520.624.925.2 Japan18.017.614.015.013.2 Africa0.50.40.3 America, incl.31.820.716.3 16.8 USA28.516.011.6 11.1 Total100 Source: Rosstat

33. October 2005 33 Booming Imports (’000 Tonnes)199920002001200220032004*% of total Chilled fish9.36.38.813.322.835.04.3 Frozen fish264.2304.1391.4414.2464.7584.171.4 Fish fillets21.210.618.234.655.462.27.6 Salted, smoked and other processed fish 7.88.312.214.012.811.81.4 Crustaceans4.47.812.818.026.735.34.3 Molluscs2.10.84.46.28.110.81.3 Canned fish115.1119.1138.494.286.070.38.6 Canned crustaceans 0.40.91.52.15.48.11.0 Total424.5457.9587.7596.6711.9817.6100 Source: State Customs Committee (GTK)* Preliminary data

34. October 2005 34 The major import sources Norway - 36.0% Great Britain - 7.1% Mauritania - 5.6% Iceland - 4.8%

35. October 2005 35 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

36. October 2005 36 HS CodeProduct DescriptionImport 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

37. October 2005 37 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!

38. October 2005 38 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!

39. October 2005 39 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 ?

40. October 2005 40 BOOMING MARKET

41. October 2005 41

42. October 2005 42 Auchan, Moscow, March 2005

43. October 2005 43 Source: RetailPlanet

44. October 2005 44 Source: RetailPlanet

45. October 2005 45 Source: Rosstat Annual per capita consumption of seafood Kilo Year

46. October 2005 46 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

47. October 2005 47

48. October 2005 48

49. October 2005 49 The Russian consumer Typical Tatjana and Ivan? Price versus quality Urban versus rural Diversity

50. October 2005 50 Key issues Continued economic growth? Continued growth in retail? Better distribution? Regionalism? More variety? New products, new suppliers?

51. October 2005 51 PROCESSING SMEs show the way

52. October 2005 52 Total production (source Rosstat) (’000 tonnes)20002001200220032004* Live fish (excl. herring)349.6343.9287.1260.0254.0 Chilled fish (excl. herring)100.2104.9140.1105.175.1 Frozen fish (excl. herring)1502.91675.21661.01700.91678.2 Fillet frozen (excl. herring)117.992.749.467.767.8 Salted herring32.133.434.441.841.9 Herring of all type of processing411.2407.1372.9374.8321.0 Smoked fish (excl. herring)23.626.628.733.534.8 Fish dries and dry-cured8.49.19.910.511.0 Spiced and marinated products1.62.42.53.53.7 Culinary products8.211.616.837.747.7 Balyk products1.11.31.62.12.0 Caviar25.928.021.724.923.3 Seafood products other than finfish 96.297.5103.693.395.2 Canned fish and preserves, million conv. cans 587.3611.2629.1692.5778.2 Other 110.38.911.534.665.0 Seafood products including canned fish 2994.83056.62961.43032.82993.1

53. October 2005 53 Structure of production capacities 2004 Source: Rosstat CapacityProduction Use Rate, % Fish cans and preserves, '000 conv. cans965 413481 35449.9 of which fish preserves, '000 conv. Cans62 46538 44461.5 Frozen herring, tonnes207 397108 94552.5 Frozen fish (excl. herring – tonnes)2 520 3181 050 47241.7 Fish fillet frozen (without herring – tonnes)106 56737 34535.0 Smoked fish (without herring), dry-cured fish and balyk products, tonnes70 78516 80323.7 of which smoked fish (excl. herring– tonnes)39 9959 83924.6

54. October 2005 54 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

55. October 2005 55 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?

56. October 2005 56 FOREIGN INVESTMENTS Take off?

57. October 2005 57 Access to quotas and the fleet Pacific Andes/Tralflot Archangelsk Trawler Fleet Other companies for sale (www.dalryba.ru)www.dalryba.ru Quota transfers Distant waters

58. October 2005 58 On-shore Processing and Distribution Demand for technology by Russian investors (ROK1, Ledovo, Viciunai) Processing partnerships Foreign investments – existing plants and greenfield

59. October 2005 59 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

60. October 2005 60 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."

61. October 2005 61 FLEET New coastal vessels On-board processing – more potential? Modernisation (equipment, Fishing gear)

62. October 2005 62 FISH FARMING Potential: inland/marine Trout farming – Karelia, Moscow, St. Petersburg Salmon hatcheries Equipment Feed

63. October 2005 63 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

64. October 2005 64 Thank you for your attention