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Norwegian Fish Caught in Russia's Western Food Sanctions
Salmon and Trout Purveyors Scramble to Find New Buyers; Flood of Fish Expected on Global Markets
By ANTON TROIANOVSKI in Moscow and ELLEN EMMERENTZE JERVELL in Oslo CONNECT
Aug. 8, 2014 2:13 p.m. ET
Workers handle harvested salmon at a Norwegian fish farm Thursday. Bloomberg News
Amid the global tug of war over the future of Ukraine, 34 tons of Ola Braanaas's salmon got caught in the middle.
"We have to sell our fish at any price now," the Norwegian salmon exporter, whose biggest customer was Russia, said on Friday. "The fish has to go."
The cascading impact of Moscow's ban on many Western food imports this week may be starkest when it comes to fish.
On Friday, Norwegian fish purveyors, for whom Russia is a key market, scrambled to find new buyers. Chile and the tiny Faroe Islands saw an opportunity to fill the gap in feeding the Russian appetite for salmon and other sea creatures. Shares in a Russian fish production company that until recently was partly owned by a U.S.-sanctioned Russian tycoon soared 19%.
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"We consider the recent Russia events as a 'Black Swan' on the demand side," a fish industry analyst, Kolbjorn Giskeodegard, said in a research note, referring to the financial-markets term for an unexpected and consequential event.
Russian fish consumers, who are already battling climbing grocery and restaurant bills, should gird for higher prices, market-watchers said, while shoppers elsewhere could see discounts.
Russia on Thursday prohibited for one year imports of beef, pork, poultry, fish, fruit, vegetables, cheese, milk and other dairy products from the U.S., Canada, the European Union, Norway and Australia. The move—which is expected to drive up an array of food prices for Russians—came in retaliation for sanctions against Russia's oil, banking, and military sectors, which the EU and U.S. said they enacted to pressure Russia to stop destabilizing Ukraine.
Mr. Braanaas, who sells 70% of his salmon and trout to Russia, had two trucks carrying 17 tons each en route to the border Thursday when the news came that they needed to go elsewhere. He described his scramble to find new buyers for the fresh fish as "acute chaos." In a follow-up interview on Friday, he said he eventually was able to find buyers for all the fish at a slight discount.
One of Norway's largest salmon traders said he had managed to sell off half his stock that had been bound for Russia to European fish processors at a discount. The other half was frozen.
In the EU, authorities in Brussels said they have begun examining whether to compensate farmers hit by Russia's bans on food imports, a move that could help neutralize any backlash against the European sanctions that prompted Moscow's retaliation. Experts from the EU's 28 member states will meet Thursday to discuss preliminary estimates of the ban's potential effect on farmers, though officials said they would probably need more time to decide whether compensation is needed.
The Norwegian Seafood Federation isn't seeking similar compensation. Russia's decision to include in its sanctions the fish industry in Norway, which isn't part of the EU, appeared to surprise many investors. Norway had followed suit after this year's early rounds of European sanctions against Russia and signaled it would do the same with the most recent, toughest EU measures last month. Russian Customs Service data show Norway's fish trade would be among the single hardest-hit sectors by the new sanctions, with more than $1 billion in sales to Russia last year.
In 2013, Norway on average sold 134 truckloads of trout and salmon every week to Russia—its largest foreign market. Shares in Norwegian company Marine Harvest AS MHG.OS +4.33% A, the world's largest salmon farmer, closed down 11% on the New York Stock Exchange on Friday compared with their Wednesday afternoon close.
"Companies need to turn quickly and find new markets," Are Kvistad of the Norwegian Seafood Federation said. "Large volumes of fish have to be sold."
Russia's sanctions also created some beneficiaries, including fish producers in Chile, Iceland, and the Faroe Islands—a tiny, non-EU country in the Atlantic Ocean between Iceland and Scotland—which would now face less competition on the Russian market.
But even fish producers in those countries will have to contend with a flood of fish on the market that had been destined for Russia.
Mr. Giskeodegard, the fish industry analyst, said shoppers around the world—except in Russia—can expect discounts on salmon in the supermarket, with wholesale prices already down some 10% since last week.
"They are the winners," Mr. Giskeodegard said of global shoppers. "The losers are the Russian consumers. They should expect higher prices."
The ban also benefits domestic Russian fish producers. Shares in one of the market leaders, GK Russkoe More RSEA.MZ -3.89% OAO, shot up 19% on Friday. Gennady Timchenko, a Russian tycoon who was one of the first well-connected elites in Russia to be sanctioned by the U.S. earlier this year, owned a 30% stake in Russkoe More until recently. The official Itar-Tass news agency reported that he had sold the stake to his son-on-law several weeks ago. The company declined to comment on the effect of the sanctions.