14 minute read
Sandy Neil
The cost of confl ict
The impact of the invasion affects every sector in the global economy, and seafood is no exception
BY SANDY NEIL
“It can seem odd to be discussing the ‘price of fi sh’ at a � me like this,” said the UK’s seafood authority, Seafi sh, as Europe faced up to war and an unfolding humanitarian crisis, “but seafood is one of the most heavily traded commodi� es, and the horrifi c events taking place in Ukraine will impact on businesses and consumers in the UK, Europe and beyond.”
Nobody can fail to be aware of the human cost of war. But what about the economic cost?
The impacts, such as the loss of Ukrainian, Russian, and Belarussian markets, plus the rise in feed and fuel prices, pale in comparison to the suff ering felt on the ground. They will only become clearer each day the fi gh� ng con� nues, and for a long � me a� erwards.
From the perspec� ve of the aquaculture sector, following the earlier challenges posed by both Covid and Brexit, the future is once more uncertain.
“The situa� on in Ukraine is both very serious and unclear,” said the Norwegian Seafood Council on Thursday 24 February, the day the fi rst Russian missiles struck Ukraine. “It is expected that exports to Ukraine will be challenging, and that interna� onal sanc� ons and counter-sanc� ons will aff ect interna� onal trade, also for Norwegian seafood exports to the Eurasian Economic Union (EEU).”
The EEU consists of Russia, Belarus, Kazakhstan, Kyrgyzstan and Armenia, to which salmon, trout, herring and mackerel are Norway’s main exports.
Moscow imposed a ban on food imports from Norway, the UK, the United States, Iceland and the European Union in 2014, in retalia� on for general sanc� ons imposed by the West a� er Russian troops annexed Crimea. However, Norwegian exports of salmon, trout and other fi sh had crept in through Belarus, where it was reprocessed and labelled as local seafood.
Overall, Russia accounted for just 0.2% of the total value of Norwegian seafood and related exports in 2021, worth NOK 248m (£21.8m), with exports to Russia consis� ng mainly of salmon smolts and feed ingredients.
Norway is Europe’s largest exporter of seafood to Ukraine, however. Although small, volumes are not insignifi cant at NOK 2.2bn (£185m) a year. Trade has been growing since the two countries signed a free trade agreement 10 years ago.
Following the invasion, Norwegian seafood companies immediately faced diffi cul� es. SalMar, one of Norway’s largest salmon farming companies, had fi sh cargo on its way to Ukraine, but the shipments were turned around just prior to Russia launching its invasion.
“We took ac� on in advance and sent the trucks to other markets before they reached the border,” CEO and owner Gustav Witzøe says.
Opposite from top: Civilians evacua� ng Irpin, near Kyiv; Tavish Sco�
“Other consequences are far more serious, especially for those directly aff ected but also for the rest of the world,” he adds. “We must be prepared for a greater degree of fl uctua� ons due to increased unrest in the markets.” In the UK, Salmon Scotland’s Chief Execu� ve Tavish Sco� agrees: “The impact of this despicable act of aggression will reverberate throughout the global economy, but our only thought is for the safety of the people of Ukraine, and we hope that democracy and peace can prevail.”
In terms of UK salmon exports, the war will hardly have any impact at all, a sector source said. No Sco� sh salmon has been exported to Russia since the sanc� ons imposed following the annexa� on of Crimea in 2014. A small amount of salmon was exported to Belarus, but that has since stopped. Very li� le salmon was exported to Ukraine, so the overall impact, in export terms, is minimal.
The Faroe Islands was one of the few European countries s� ll selling fi sh such as salmon, herring, and mackerel to Russia. The Faroes’ unique poli� cal posi� on, as part of the Kingdom of Denmark but outside the EU, meant it was not bound by previous export bans to Russia. It is thought between 5-10% of sales from the country’s seafood sector found their way to Russia last year.
Two key salmon farming companies in the Faroes, Bakkafrost and the Lerøy Seafood Group, acted to prevent their products ge� ng into Russia. Bakkafrost CEO Regin Jacobsen told the Norwegian business news site E24.no it had stopped sending salmon to Russia when the invasion seemed inevitable. Lerøy told the Norwegian news site iLaks that it had stopped selling fi sh to Belarus, which is thought to act as a processing conduit for Russia.
Giving an update one week into the war, the Norwegian Seafood Council stated: “For seafood, there is a full stop of exports into Ukraine. Norwegian fi sh exporters report that they are trying to fi nd other markets for the fi sh that were bound for Ukraine. This is also the situa� on for other na� ons such as Chile and the Faroe Islands, and it is expected that the compe� � ve situa� on will intensify in other markets.
“At the same � me, the airspace [over Ukraine and, eff ec� vely, also over Russia] is closed. This also aff ects air freight of seafood from Norway to Asia. Western exporters will have to send the fi sh around Russia. This means a longer journey and higher air freight costs. Lower freight capacity than normal will also mean less fl exibility,” said the council’s Director of Market Insight and Market Access, Tom Jørgen Gangsø. The EU and many other countries have closed their airspace to Russian aircra� , and Russia has responded by closing its airspace to 36 countries, including Norway and the UK.
What about inside Russia? In order to become less dependent on imports, recently Russia had taken major steps to increase its own salmon produc� on. In November, the country passed a milestone, reaching 120,000 tonnes per year of domes� c salmon and trout produc� on, almost level with its 2014 imports.
Russia’s largest producer of red fi sh, such as Atlan� c salmon and rainbow trout, is a Moscow-based company called Russian Aquaculture. Its por� olio includes over 25 salmon and trout farms on the lakes in Karelia and in the Barents and White seas, together producing a total poten� al volume of 50,000 tonnes of red fi sh. As of December 31, 2020, it numbered 500 employees.
In the month before the war, Russian Aquaculture’s earnings and sales spiked, driven by a surge in harvest volumes, which jumped 79% on the previous year to reach 14,300 metric tons of farmed salmon, and 1,200
tonnes of trout. This drove an 80% boost in sales volumes to 27,900 metric tons, and a revenue increase of 91% to RUB 15.9bn (£138m). The company planned to build up volumes of harvested fi sh to 35,000 metric tons by 2025.
However on 22 February, following Russia’s unilateral decision to recognise Luhansk and Donetsk, two breakaway republics in the east of Ukraine, as independent states, Russia’s markets became a sea of red. Aquaculture companies were not exempt from the stock market bloodle� ng, which saw 20% of Russian Aquaculture’s value wiped out, crashing to a low of RUB 396. It’s predicted that, for now, the company will weather the storm, with year on year revenue growth of 73% for the nine months to 30 September 2021 driven largely by domes� c demand.
Russia also has almost one third of the global quotas for Atlan� c cod, and a half of the global quotas for Pacifi c cod, with an es� mated catch of just over 500,000 tonnes of total round weight in 2021. More than 99% of Russian cod exports are frozen whole and frozen fi llets. In the UK, around 30% of cod consump� on is Russian cod. Measured in volume, the UK is the largest market for consump� on of Russian cod, with a consump� on of over 70,000 tonnes of round weight per year.
Despite a rising volume of fresh Atlan� c cod landed by Norwegian harves� ng companies, prices reached record levels by 23 March. This was the result of red-hot demand, and growing concern that Russian fi sh could be banned or restricted in some European markets. Fresh cod prices in March averaged (€3.70/$4.10) per kilogram, headed and gu� ed, a record-high, and a 56% rise over the same � me last year. Frozen cod, selling at an average price of NOK 43.99 (€4.60/$5), is also at eye-popping levels. If Russian cod disappears from the European market, prices could be sent even higher.
The Bri� sh Frozen Food Federa� on (BFFF) Chief Execu� ve Richard Harrow said: “We import a large amount of frozen white fi sh; according to Seafi sh in 2020 we imported 432,00 tonnes vs 47,000 tonnes of domes� c landings. Russia accounts for about 40% to 45% of all whitefi sh produc� on, so is a major player. In the short to medium term, we will see signifi cant price increases, some driven by the 35% tariff and some as a result of companies turning away from Russian fi sh on moral grounds and buying from other sources.”
Fish prices will be further driven up by spiralling fuel costs, he said. “All food producers are having to cope with increasing energy prices and many are being forced to pass price increases onto customers. This is one of the factors driving infl a� on. Those businesses that are unable to pass on price increases will be forced to make some tough decisions. Whilst
Top: Russia airlines have been subject to sanc� ons and Russia has retaliated in kin Above: Richard Harrow energy costs are one of the biggest concerns, there are other knock-on eff ects from the
Ukraine war, especially where ingredients are concerned. The food industry has asked to be allowed to subs� tute ingredients where products such as sunfl ower oil are in short supply, and suspend elements of labelling rules, rather than reprints of labels, which are also in short supply at the moment. However, these are complicated issues and will take � me to resolve.”
Due to the unprecedented rise in global oil prices, and huge vola� lity in the market, Scot� sh salmon haulier Northwards was forced for the fi rst � me in its history to introduce a fuel surcharge. Announcing the move, Managing Director of Northwards Mike Porter said: “This will run for an ini� al period of three months, and will be reset every week to refl ect the prevailing fuel price at that � me, so that when global prices rise and fall, so too will the surcharge.
“We appreciate the knock on eff ect this will have for our customers, and wish to reassure them that we are doing everything we can to con� nue to deliver the best service, at the best possible price, during these diffi cult � mes.”
Salmon producer Mowi says wheat is the second largest ingredient in its aquafeed, accounting for just over 17% of it. Russia is the world’s largest exporter of wheat, while Ukraine is the third largest, and by 2 March the wheat price on the Chicago Commodity Exchange was at its highest in 14 years. The two warring par� es are also big players in both corn and barley.
The vast majority of these products are shipped by bulk carrier from the port ci� es on the Black Sea and through the Bosphorus Strait near Istanbul, closed by Turkey following a series of a� acks on cargo ships. A large number of shipping companies, including Maersk, MSC,
Above from top: Protest in London calls for sanc� ons against Russia Mairi Gougeon; James Withers; Svein Tore Holsether. Right: Checkpoint, Irpin NAT and Frontline, have announced that they will no longer serve ports in the Black Sea.
Russia and Ukraine are also major producers of fer� liser, and shipping for this has also stopped. Svein Tore Holsether, President and
CEO of Norway based fer� liser group Yara Interna� onal, warns of an impending food crisis. He explains: “If you do not get nitrogen fer� liser on the soil, the grain crop will fall by 50% in the fi rst year. So you could go from an energy crisis to a food crisis here.”
If the war con� nues, it will be challenging to sow new grain in the vast farmlands of Ukraine and southern Russia. This in turn will cause las� ng problems for the supply of grain. This in turn has pushed up forward prices for a number of grain products, including subs� tutes such as soybeans, rapeseed and sunfl ower. Flour and vegetable oils are essen� al ingredients in fi sh feed for farmed salmon. Now the farmers have to get ready to pay signifi cantly more for the feed. So what does it all mean for the price of fi sh? Seafi sh, the UK’s seafood authority, has warned of cost hikes of up to 20-30%, and signifi cant supply chain disrup� on to UK seafood processing, in the form of rising fuel prices, delays to supplies, and compe� � on for products.
The organisa� on says: “This inevitably will result in cost increases [which] are expected to translate into higher food prices for consumers. It is impossible to predict how much prices will rise by, but they could be as high as 20-30%. UK seafood businesses understand how diffi cult this will be, par� cularly for low-income families who are already struggling, so there is a great deal of work happening by businesses to fi nd ways to minimise the impact this will have on consumers.”
In response to the crisis, the Sco� sh Government is se� ng up a shortlife Food Security and Supply Taskforce, co-chaired by Cabinet Secretary for Rural Aff airs and Islands, Mairi Gougeon and Chief Execu� ve of Scotland Food & Drink, James Withers.
Mairi Gougeon comments: “We need to take ac� on now to be� er understand the poten� al impact of disrup� on to the food supply chain in Scotland, how industry and government might work together to manage and mi� gate those, and be alert to the resul� ng impact on the cost of food products.
“Over the last two years, our food and drink sectors have experienced a series of shocks in terms of disrupted supply chains and new barriers to trade through Covid and Brexit. It is clear that the unfolding tragedy in Ukraine will have further impacts – not least through the hugely challenging increases in energy bills which aff ect households and everyone in the food industry, from farmers to hauliers, processors to retailers.”
The taskforce, convened jointly with industry, will monitor, iden� fy and respond to these issues, as well as recommending ac� ons that can be taken to mi� gate the challenges.
Gougeon adds: “Crucially, the taskforce will also consider how we can con� nue to get products and food supplies to Ukraine. We must not forget that there is a popula� on s� ll there that will desperately need our help and support in the weeks ahead.” FF
